S&P affirms Oman's ratings at 'BBB-' with stable outlook

29/09/2025 04:16 AST

S&P Global Ratings on Friday affirmed its 'BBB-' long-term and 'A-3' short-term foreign and local currency sovereign credit ratings on Oman. The outlook on the long-term ratings remains stable.

In a statement, S&P said the stable outlook balances the potential benefits of the government's fiscal and economic reform programme against the economy's structural vulnerability to adverse oil price shocks.

S&P said it expects the Omani government to continue strengthening its fiscal position, with reform efforts and expenditure controls supporting the sultanate's medium-term fiscal stance. 'We forecast the government will post a minor deficit of 0.5% of GDP in 2025, compared with a 1.5% surplus in 2024. We anticipate the government will balance its fiscal position over 2026-2028, given an expected moderate increase in oil and gas production and our expectation that the government will continue its expenditure efficiency drive.'

This follows three consecutive years of fiscal surpluses averaging about 2% of GDP.

Although both revenue and expenditure flexibility have grown, S&P expects Oman's fiscal position remains reliant on oil market developments. Hydrocarbon revenue is expected to account for about 70% of total revenue. 'With our assumptions that Brent oil prices will be around 20% lower over the forecast period than over the past three years, we expect Oman to post a minor deficit of 0.5% of GDP in 2025 but achieve broadly balanced budgets over 2026-2028,' the agency said.

S&P acknowledged that measures to reduce the impact of oil price volatility on Oman's economy and public and external finances are progressively being implemented. 'These include, among others, the reorganisation of its government-related entity (GRE) sector, which has improved related financial positions and led to a gradual reduction of its footprint in the economy. The government is shifting from owner to regulator, through asset sales designed to develop the non-hydrocarbon private sector and attract foreign direct investment. Notably, Oman is the first government in the GCC region to implement a personal income tax (PIT), although receipts are initially expected to be relatively minor.'

S&P expects the Omani government's fiscal and economic reform momentum to continue over 2025-2028. It said, 'Over the past five years, Oman has made progress in addressing significant structural challenges - including high budgetary and external deficits, subdued economic growth, and relatively high youth unemployment. The government has made inroads into tackling public finance and governance issues, aided by a supportive oil market. Transparency improvements are also evident, with data disclosure now including quarterly real GDP data, quarterly fiscal positions, and an annual international investment position, in addition to participation in the IMF Article IV process.'

The rating agency forecasts real GDP growth of about 2% per year on average over 2025-2028, following growth of 1.7% in 2024. Construction, manufacturing and services all supported growth, and as a result, non-hydrocarbon sectors have expanded to represent about 60%-65% of GDP. S&P expects non-hydrocarbon growth to remain steady at about 2.9% per year, driven by investment in manufacturing and tourism.

The rating agency forecasts real GDP per capita to average about $19,400 over 2025-2028, with population growth projected to average 2% per year over the same period. It also anticipates Oman's oil production will progressively increase towards 1.2mn bpd by 2028, ahead of schedule and up from 1mn bpd in 2024, following recent OPEC+ announcements of further production increases.

S&P noted that it could raise Oman's ratings over the next two years if it believes 'measures to strengthen institutions - for example, those supporting economic diversification, public finances and the development of domestic capital markets - prove sustainable'.

Conversely, the agency could lower the ratings if 'fiscal and economic reform implementation slowed, or an unfavourable external environment, such as a terms-of-trade shock, were to result in fiscal deficits and raise net debt levels significantly above our forecasts'.

Muscat Daily