Oman’s economy is experiencing a mixed performance in the aftermath of the plunge in oil prices. But in its favours is the relatively low outstanding public debt, which provides the necessary cushion to deal with the near year-long softness experienced by oil prices.

Moody’s Investor Services puts Oman’s public debt at 10 per cent of the gross domestic product (GDP). This very fact partly explains a recent move by Moody’s for reaffirming an A1 rating for Oman’s government bonds. The affirmation took many analysts tracking the economy by surprise, and more so as it comes from a rating agency known for its toughness in assigning ratings.

However, Moody’s changed outlook for the economy from stable to negative clearly demonstrates its wariness about future prospects.

Even Standard & Poor’s Rating Services lowered the foreign and local currency sovereign credit rating for the Sultanate from A/A-1 to A-/A-2 while maintaining a positive outlook.

Understandably, questions are arising about government finances and for good reasons. Oman posted a budgetary deficit of $937 million in fiscal year 2014. Still, the shortfall is not notably worrying by virtue of comprising around 1.2 per of the GDP.

To be sure, all projections call for a shortfall in fiscal year 2015 though they differ on the extent. The authorities prepared this year’s budget with expenditures and revenues of $36.6 billion and $30 billion respectively. The projected deficit amounts to $6.6 billion, or 8 per cent of GDP.

Moody’s sees little prospects for curtailing spending this year in order to avoid a serious fiscal imbalance. Surprisingly, the budget was prepared using an average oil price of $75 per barrel. By one account, a balanced budget would require an oil price of $102 per barrel, considerably above prevailing market rates.

Steady spending is vital to address the outstanding challenges, notably unemployment among locals. The jobless rate stands at 8.1 per cent, the lowest within the Gulf states. Oman’s GDP of $82 billion is the fifth largest within the GCC.

In addition, reducing capital spending is not going to be easy as it would affect key projects relating to the expansion of the airport and port facilities.

The central bank estimates GDP growth of 5 per cent for the first quarter of 2015, thereby near the level achieved in the corresponding period in 2014. This suggests that it is business as usual in the sultanate.

The same entity projects a growth rate of 5.5 per cent at constant prices for the entire year. But Moody’s believes while real GDP growth should remain positive, it will be at an average of 2.6 per cent a year until 2018. Like the rest of the Gulf states, inflation is not a matter of concern, which now stands at 1.2 per cent.

The International Monetary Fund projects Oman’s non-oil growth at 5 per cent for each of 2015 and 2016. In a recent report, the IMF made some notable remarks on the state of the oil sector, pointing out that production of 980,000 barrels per day is near capacity. There is the possibility of output reaching 1 million per day in 2015. Nonetheless, the burden will fall on non-oil sectors to boost growth levels.

The way forward calls for steady efforts to achieve economic diversifications. The oil and gas industry contributed almost 80 per cent of treasury revenues and 50 per cent of the GDP. Undoubtedly, there are clear challenges that the Omani economy must see through.

The writer is a Member of Parliament in Bahrain.