Moody's Investors Service downgraded Oman's long-term issuer and senior unsecured bond ratings from 'Baa3' to 'Ba1', which is one notch below investment grade. It maintained the 'negative' outlook on the ratings. It attributed the downgrade to the authorities' limited scope for further fiscal consolidation in the context of weak growth. The agency pointed out that higher global oil prices during 2018 reduced the fiscal reform momentum, including delaying the introduction of special excise taxes and the value-added tax to the second half of 2019 at the earliest. It added that the 2019 budget includes few new fiscal consolidation measures, such as the sale of state assets and the standardization of municipality fees. As a result, it forecast the fiscal deficit at 7% of GDP to 11% of GDP over the next three years. It anticipated the public debt level to regress to around 60% of GDP by 2021 in case fiscal reforms are implemented as planned. Further, Moody's projected the current account deficit to narrow over the medium term, but to remain wide at between 6% of GDP and 10% of GDP, which raises the risk of external shocks. It also expected Oman to remain dependent on external financing to maintain an adequate level of foreign currency reserves. In parallel, the agency noted that the 'negative' outlook reflects the potential weakening of foreign investors' appetite to finance Oman's wide fiscal deficits at relatively low costs, which would exacerbate the sovereign's external vulnerabilities and raise the pressure on government liquidity. It forecast Oman's gross financing needs to rise from 10% of GDP in 2018 to around 14% of GDP in 2022.
Source: Moody's Investors Service