Moody's upgrades Oman's credit rating to Baa3 with stable outlook, citing improved debt metrics
highlighted
the significant reduction in the debt burden over recent years and the cumulative impact of spending restraint as key factors enhancing Oman's resilience to potential future declines in oil demand and prices.
At the close of 2024, Oman's government debt burden fell to 35.5 percent of GDP, down from 37.5 percent at the end of 2023, marking a continuation of the improvement trend since 2020. Moody's anticipates that most of Oman's debt ratios will keep improving in the upcoming years, albeit at a more modest pace than observed over the past four years. A stronger debt position grants the government greater fiscal space and time to implement structural reforms aimed at reducing the country's heavy economic and fiscal reliance on the hydrocarbon sector.
Balancing fiscal risks
Government expenditure has decreased to less than 29 percent of GDP in 2024, down from an average of over 41 percent during the period from 2016 to 2020. This spending restraint has consequently lowered Oman's fiscal breakeven oil price to under $70 per barrel for 2024-2025, compared to an average exceeding $84 per barrel in 2016-2020.
The stable outlook strikes a balance against fiscal risks across various oil price scenarios. Upside risks are primarily linked to regional geopolitical tensions that could push oil prices higher, while downside risks involve the potential for an accelerated global carbon transition, which may lead to weakened hydrocarbon revenue.
Additionally, Moody's raised Oman's local currency and foreign currency country ceilings to A3 from Baa1 and to Baa1 from Baa2, respectively. The rating agency remarked that Oman's credit profile remains vulnerable to fluctuations in oil prices due to its economic and fiscal reliance on hydrocarbons. The hydrocarbon sector contributed, on average, around 34 percent of GDP, 56 percent of exports, and 76 percent of government revenue during the period from 2020 to 2024.
Long-term economic reforms
In terms of longer-term upside potential, ongoing fiscal and economic reforms are noteworthy, including plans to introduce a 5 percent personal income tax by 2028, develop a large green hydrogen sector, and expand liquefied natural gas production capacity by a third by 2030.
Oman's economy exhibited a consistent growth rate of 2.5 percent in real GDP by the conclusion of Q1 2025, reaching OMR9.43 billion ($24.52 billion) at market prices—an increase from OMR9.2 billion during the same timeframe in 2024, as reported by Oman's National Centre for Statistics and Information. This uptick in GDP was primarily driven by robust performance in non-oil sectors, which experienced a 4.4 percent increase in added value, climbing to OMR6.92 billion compared to OMR6.63 billion in Q1 2024.
Oil activities faced a slight decline of 0.4 percent, contributing OMR2.92 billion in Q1 2025, down from OMR2.94 billion the previous year. Crude oil production decreased by 2.2 percent to OMR2.45 billion, while natural gas production emerged as a positive factor, soaring by 9.5 percent to OMR475.3 million.
Read more: Oman's tourism attracts $6.7 billion in investments from $7.8 billion target by end of 2025
Budget surplus and current account gains
Oman recorded a budget surplus of 6.2 percent and a current account gain of 2.4 percent in 2024, attributed to prudent fiscal policies, elevated oil prices, and growth in nonhydrocarbon exports. In its 2024 Article IV consultation, the International Monetary Fund credited these outcomes to effective economic management. Despite increased social spending under a new protection law, the nonhydrocarbon primary deficit as a share of nonhydrocarbon gross domestic product remained stable, highlighting the government's commitment to financial discipline.
Government debt as a percentage of GDP further declined, reaching 35 percent in 2024, reflecting ongoing improvements in Oman's economic fundamentals. The Sultanate of Oman experienced an average inflation rate of 0.81 percent during the initial five months of 2025 compared to the same period last year, according to the Consumer Price Index data released by the Ministry of Economy.
The report underscored a 1.3 percent rise in the general import price index and a 4.1 percent increase in the producer price index by the end of the first quarter of 2025 compared to the corresponding period in 2024. Geographical distribution revealed varied inflation rates across governorates, with South Al Batinah recording a slight decline of 0.04 percent, while A'Dakhiliyah saw the highest rate at 1.58 percent, closely followed by Musandam at 1.51 percent and South A'Sharqiyah at 1.24 percent. More moderate increases were observed in North A'Sharqiyah (0.21 percent) and North Al Batinah (0.42 percent), with other governorates remaining below one percent.
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