S&P Global Ratings brought Oman down to B + as lower crude revenues and the coronavirus pandemic hit the country’s finances.
Oman’s sovereign rating was downgraded for the second time in 2020 by S&P Global Ratings, as lower crude oil revenues and a virus pandemic severely affected the country’s finances.
S&P took Oman one degree lower to B +, four levels in its non-investment grade, according to a statement Friday. The outlook for the rating is stable.
The Gulf state has already been downgraded twice this year by both Moody̵
“Oman’s public sector finances, as indicated by the level of net debt, will weaken significantly over the next three years, despite the implementation of measures to reduce fiscal deficits,” said S&P. “This is partly due to our assumptions of subdued growth in oil prices and a slow economic recovery from the Covid-19 pandemic.”
The sultan’s finances were in trouble even before the pandemic broke out and oil prices collapsed. It is now on track to accumulate the steepest budget deficit since 2016 at nearly 19% of gross domestic product, according to the International Monetary Fund. The economy is shrinking by 10%, the most among the Arab Gulf countries, the fund estimates in its latest outlook.
S&P estimates that Oman’s gross government debt will grow to about 84% of GDP by the end of 2020 from 60% in 2019, while corporate debt will reach 43% of GDP by 30% over the same period. Real GDP will shrink by 5% in 2020 due to restrictions on oil production under the OPEC + agreement and the impact of Covid-19 on domestic demand and investment, the statement said.
The IMF now expects Oman’s debt ratio to rise by 18 percentage points this year, along with Ecuador’s garbage rating.
According to Bloomberg Barclays indices, Oman’s dollar bonds are weaker than all their peers in the Arabian Gulf this year.
Oman’s economy has struggled with an earlier oil price crisis in 2014 and has been forced to use international debt markets to fill its budget deficit.
Slower than its neighbors implemented fiscal reforms, despite declining reserves, although this month announced plans for a 5% value added tax next year, step economists said it was welcome, but not enough.
“Additional VAT revenue will be largely offset by additional interest costs,” Jaiparan Hurana wrote to Morgan Stanley in a note on October 15.
Oman, the largest exporter of oil outside OPEC, is discussing receiving financial aid from richer neighbors earlier this year to help it overcome cheaper crude oil and the pandemic.
Preliminary data show that the fiscal deficit increased by 25% in the first half of 2020 on an annual basis.