Dubai: Standard & Poor’s Ratings Services maintained its outlook on Oman as stable as the Gulf country is supported by a strong net external and general government asset positions and prudent investment policies, which mitigates the risks to the economy by its high dependence on hydrocarbons.
The credit ratings agency affirmed Oman’s long- and short-term sovereign credit ratings at ‘A/A-1’.
However, “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, according to the official estimate), and limited monetary policy flexibility,” said the agency in a press statement released on Friday.
The transfer and convertibility (T&C) assessment has been revised downward to ‘A+’ from ‘AA-’ to align with the regional view on the likelihood of the Gulf Cooperation Council sovereigns restricting nonsovereign access to foreign exchange.
Standard & Poor’s Ratings Services expect real gross domestic product (GDP) growth of Oman to reach 5 per cent in 2013, underpinned by an increase in oil production to an average of 0.94 million barrels per day (bpd) from 0.92 million bpd in 2012. We also believe growth in the non-oil economy will remain robust thanks to high investment and public and private consumption. We estimate per capita GDP at $21,700 in 2013.
The agency expects sthe general government to register a surplus of 1.6 per cent this year, based on its oil export price assumption of $105 per barrel. For 2014-2016, the surplus is expected to average 1.9 per cent, based on the assumption of an average oil export price of $97 per barrel and contingent on a curtailment in government expenditure to an average of 41.5 per cent of GDP.
The stable outlook balances Oman’s strong fiscal and external positions — which provide a comfortable buffer to withstand external shocks — 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.
“We could consider lowering the ratings in response to a protracted weakening in fiscal performance — for example, as a result of continued increases in spending on the public-sector wage bill, which could lead to an increase in government debt and a fast drawdown of government assets. We could also consider lowering the ratings if growth in per capita real GDP were to slow further, despite diversification and structural reform efforts. We could consider an upgrade if the underpinnings of economic growth strengthen, raising per capita income levels,” the statement said.
