Sultanate of Oman L-T FC rating raised to 'A-' on balance sheet strength; outlook stable

At the same time, the 'A-' long-term local currency and 'A-2' short-term foreign and local currency sovereign credit ratings were affirmed. The outlook on both the foreign and local currency ratings is stable.

"The upgrade is based on the government of Oman's strong fiscal position and the country's solid external net asset position, both of which have demonstrated continuing improvement," said Standard & Poor's credit analyst Tim Reid.

An environment of high oil prices, coupled with prudent fiscal policies, resulted in a general government surplus at 11.1% of GDP in 2005. Assuming an average Brent crude price of about $66 per barrel during 2006, the surplus should increase to nearly 20% of GDP by year-end. Based on this assumption, Standard & Poor's expects the general government's net external asset position to approach 70.0% of GDP by year-end 2006, up from 16.2% in 2000.

External liquidity also remains strong, with an expected 2006 current account surplus at 19% of GDP. Net external assets have continued to rise, and are expected to exceed 110% of current account receipts (CARs) by 2007, up from 40% of CARs in 2001.

Oman has enjoyed political stability since soon after the current Sultan's assumption of power in 1970. The length of his reign, however, has also meant that the succession process, enshrined in the 1996 constitution, has yet to be tested. That said, prevailing geopolitical tensions that increase uncertainties across the Middle East are of more immediate importance, as they could potentially impede future investment into Oman and economic growth.

Standard & Poor's expects that fiscal policy will remain oriented toward fulfilling Oman's development needs and limiting vulnerability to oil production and prices.

"The ratings could be raised if Oman's hydrocarbon sector were to show demonstrable potential for ongoing stability and possibly growth. This could occur if the government were to strengthen its domestic tax revenue base significantly, through the introduction of VAT, for example, or if further progress were made in developing a competitive private sector and expanding non-oil exports," said Mr. Reid. "Conversely, the ratings could come under downward pressure if the geopolitical situation were to deteriorate sharply, or if the hydrocarbon sector were to contract significantly."