Fitch Ratings has downgraded Oman’s credit rating for the second time this year, bringing it down a notch to BB-minus from BB and keeping its outlook negative, the ratings agency said on Monday, citing the continued erosion of its fiscal and external balance sheets.
One of the weakest economies in the hydrocarbon-reliant Gulf, Oman is a relatively small crude producer burdened by high levels of debt and is therefore more vulnerable to oil price swings than most of its wealthier neighbors.
Fitch forecast a fiscal deficit of nearly 20 percent this year, up from 8 percent last year, saying that a 32 percent drop in revenue driven by lower oil prices and production more than offsets an 8 percent cut in spending.
The agency expects Oman’s average oil export price to be $45 a barrel in 2020, far below its estimated break-even price of $70.
The government secured a $2 billion bridging loan with a group of banks to bolster state coffers hit by low oil prices and the economic downturn caused by the coronavirus crisis, sources said last week.
Fitch said it expects debt to increase to more than 80 percent of GDP this year, against 60 percent last year.
“The coming three years will be a critical test of the funding flexibility that Oman has displayed in the past, and a steep maturity schedule will keep Oman’s funding needs large beyond that, even as the fiscal deficit is reined in,” Fitch said.
Fitch forecast fiscal deficits and external debt maturities will total $12 billion to $14 billion a year in 2020-2022, which it said was a level last seen in 2015-16 when Oman’s balance sheet was markedly stronger. The agency expects more than half of the government’s funding needs to be met by external debt.
While Fitch said that financial support from the six-member Gulf Cooperation Council (GCC) is likely to become available to Oman, multiple factors are at play.
“The size, timing and form of further support remain uncertain amid Oman’s desire to maintain geopolitical neutrality, political and fiscal challenges in the rest of the GCC and the large size of Oman’s funding need,” it said.
In June, Moody’s downgraded Oman deeper into junk territory to Ba3 from Ba2, citing risks related to its financing needs and diminishing buffers.