Ratings agency Standard and Poor’s (S&P) affirmed its ‘A/A-1’ long and short-term foreign and local currency sovereign credit ratings on the Sultanate. The outlook is stable and balances the Sultanate’s strong fiscal and external position against ‘risks from structural and institutional weaknesses which could hinder policymaking; a young population that could pose challenges for economic policy; and limited monetary policy flexibility’, the S&P report said.
The ratings are supported by Oman’s strong net external and general government asset positions and prudent investment policies. “They are constrained by our view of its still-nascent public institutions, its young demographic profile requiring significant job creation (nearly 57 per cent of the Omani population was under 25 as of mid-2012) and limited monetary policy flexibility.”
Real GDP growth is expected to reach 5 per cent this year, underpinned by an increase in oil production to an average of 0.94 million barrels per day (bpd) from 0.92 last year. Growth in the non-oil economy was expected to remain robust owing to high investment and public and private consumption and the per capita GDP was estimated at $21,700 in 2013.
The steady expansion in Oman’s oil production since 2007 and large infrastructure and development investments have contributed to support overall economic growth. As a result, real GDP growth has averaged 6.5 per cent for the five years ended 2012. But S&P has concerns as Oman’s 10-year trend of weighted-average in real per capita GDP growth was below that of peers with a similar GDP per capita. The low growth reflected in the high inflow of foreign workers boosting population growth numbers.
Government fiscal surpluses have narrowed down from 7 per cent in 2011 to 2.6 last year owing to expansion in recurrent public spending. It is expected to have a 1.6 per cent surplus, based on an assumed oil export price of $105 per barrel. For 2014-2016, the surplus to average has been put at 1.9 per cent on an assumption that the average oil export price would be $97 and government expenditure being reined in to an average 41.5 per cent of GDP.
“A risk to the government’s fiscal performance is its reliance on volatile hydrocarbon revenue, which constituted 88 per cent of total revenues in 2012. However, the government’s large stock of liquid assets – at close to 80 per cent of GDP – mitigates this risk,” the report said. The transfer and convertibility assessment has been lowered to ‘A+’ from ‘AA-’ to align with the rating agency’s regional view of the Gulf Co-operation Council (GCC) sovereigns restricting non-sovereign access to foreign exchange.
“The Sultanate has taken some measures to expand political participation, but political institutions remain at a nascent stage of development relative to non-regional peers rated in the ‘A’ category,” it added. The large oil windfall in recent years has helped strengthen Oman’s external position, with the current account surplus reaching 10.4 per cent in 2012. This was likely to continue and the agency estimates the surplus at 8.6 per cent of GDP this year. Oman was in a strong net creditor position and net external assets were estimated to average 80 per cent of the current account receipts during 2013-2016.
