Oman's A1 rating with a stable outlook reflects the government's healthy financial position and the country's robust growth outlook, which takes into account the government's efforts to diversify the economy away from the hydrocarbon sector, says Moody's Investors Service. However, Moody's also notes vulnerabilities related to the performance of the oil and gas sector.
Oman's high reliance on the hydrocarbon sector, which contributes significantly to GDP and government revenues, creates both economic and fiscal vulnerabilities. At the same time, Oman's proven reserves are some of the smallest among major oil producers, and are also increasingly costly to explore.
Moody's notes that the non-hydrocarbon sector has also contributed significantly to Oman's economy, but its performance relies heavily on oil prices. Most activity in the non-hydrocarbon sector relates to either the public sector, which depends on oil revenues, or spillovers from high oil prices via strong demand.
Furthermore, fluctuations in hydrocarbon output and prices have increased Oman's growth volatility since 2008. For instance, in 2009, real GDP rose by more than 13 per cent year-on-year, but growth dropped to less than four per cent in 2009.
Oman's fiscal breakeven oil price is among the highest in the region, estimated at around $101.6 per barrel in 2014 by the International Monetary Fund. This price limits Oman's fiscal headroom and leaves fiscal accounts highly vulnerable to a decline in oil prices.
The International Monetary Fund forecasts a medium-term growth rate of 3.6 per cent for Oman during 2014-18. However, such growth would depend on ongoing efforts to diversify the economy away from oil. The government continues to focus on infrastructure investment, and on fostering non-oil sectors such as logistics, fishing industries and tourism.
Assuming only very gradual progress with regard to subsidy reform, Moody's expects that the government will face fiscal deficits from 2015, but not to an extent that undermines the government's financial strength.
Moody's sees the government's sizeable net asset position as a key credit strength, and Oman's healthy banking system poses only limited contingent liabilities to the government's balance sheet.