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19 January 2020

Oman's fiscal challenges to remain post-succession, says Fitch

Oman has delayed bringing in a five per cent value-added tax from 2019 to 2021 and economic diversification has lagged, with oil and gas still accounting for over 70 per cent of government revenues.

Sultan Haitham bin Tariq Al Said, the new ruler of Oman/Bloomberg

by Kudakwashe Muzoriwa

Fitch Ratings said that the elevation of Sultan Haitham bin Tariq al-Said entails continuity of fiscal policies, therefore, twin fiscal and external deficits, as well as rising indebtedness, will remain the key risks to Oman’s (BB+/Stable) rating which was affirmed in July 2019.

As the chosen successor of Sultan Qaboos bin Said al-Said as well as a senior member of the government and the royal family, Sultan Haitham is likely to adhere to previous policy approaches.

According to Fitch, Sultan Haitham will also face many of the constraints to reform as his predecessor. Sultan Haitham will likely be confronted by the need to ensure Oman's security in an unstable region and to provide economic opportunities to a young and underemployed population.

Oman’s newly appointed ruler has a narrowing window to address the country’s fiscal and economic challenges, amid a backdrop of weak oil prices.

S&P Global said that its negative outlook on Oman (BB/B) reflects the risk that, in the absence of substantial fiscal measures to curtail the government deficit, fiscal and external buffers will continue to erode.

However, there is a possibility that Sultan Haitham could pursue bolder fiscal and economic reform than his predecessor. The swift appointment of Sultan Haitham after the death of Sultan Qaboos bin Said reassured investors, as some had feared a protracted succession that could have exposed Oman to external interference.

Oman’s fiscal deficit decreased marginally to 8.4 per cent of GDP 2019, compared with the forecast of 9.8 per cent in Fitch’s last rating assessment last year. However, without proceeds from asset sales the deficit would have increased amid falling oil revenue and higher spending.

Rating agencies and economic analysts expect government policy and centralised decision-making structures in the Sultanate to remain unchanged. The Sultan holds the offices of Prime Minister, Minister of Finance and Chairperson of the Board of Governors at the Central Bank of Oman.

Rated junk by S&P, Fitch and Moody’s, Oman’s debt to GDP ratio spiked to nearly 60 per cent in 2019 from around 15 per cent in 2015 and it can reach 70 per cent by 2022, said S&P.

Reuters reported that Oman is facing rising refinancing risks as a result of large government external debt maturities in 2021 ($4.3 billion) and 2022 ($6.4 billion) that could add significant pressure to foreign exchange reserves if the debt is not rolled over.

RELATED STORIES: Moody’s S&P Global Sultan Haitham bin Tariq al-Said Fitch Ratings Sultan Qaboos bin Said al-Said fiscal reform Oman





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