Moody's upgrades Oman to Baa3, changes outlook to stable
The upgrade reflects Moody's expectation that Oman's government debt metrics will remain robust even if oil prices moderate below Moody's medium-term assumption of $65/barrel in the coming years. The recent years' significant reduction in debt burden together with the cumulative impact of spending restraint increase Oman's resilience to potential future declines in oil demand and prices.
Stronger debt metrics also afford the government more fiscal space and time to implement structural reforms that could, over time, reduce the sovereign's still-heavy economic and fiscal reliance on the hydrocarbon sector and potentially support a higher rating.
The stable outlook balances fiscal risks under alternative oil price scenarios.
The upside risks stem primarily from regional geopolitical tensions, that could drive oil prices higher than Moody's medium-term assumptions, without affecting Oman's ability to export. Conversely, the downside risks include the possibility that global carbon transition accelerates more than we currently assume, leading to weaker hydrocarbon revenue streams in the medium term compared to our baseline. Significantly and durably lower hydrocarbon revenues could reverse the past few years' improvements in Oman's fiscal strength if not met with similarly significant new fiscal consolidation measures.
Thursday's rating action also applies to Oman Sovereign Sukuk, a special-purpose vehicle domiciled in Oman, whose obligations, in our view, are ultimately the obligation of the Government of Oman.
The entity's backed senior unsecured ratings and its backed senior unsecured medium-term note programme rating were upgraded to Baa3 from Ba1 and to (P)Baa3 from (P)Ba1, respectively. The outlook has been changed to stable from positive.
Oman's local currency (LC) and foreign currency (FC) country ceilings were raised by one notch to A3 from Baa1 and to Baa1 from Baa2, respectively.
The local currency country ceiling at A3, three notches above the sovereign issuer rating, incorporates the economy's heavy reliance on a single revenue source, the government's large economic footprint, and Oman's track record of material external imbalances during the periods of lower oil prices, mitigated by predictable institutions and moderate political risk.
The FC country ceiling at Baa1, one notch below the local currency ceiling, reflects relatively modest transfer and convertibility risks, taking into account the sovereign's robust foreign-currency buffers and Oman's track record of improving fiscal policy effectiveness, balanced by the economy's high, albeit declining, external indebtedness.
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