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After Saudi, S&P cuts Oman credit rating over cheap oil

Country posted a budget deficit of OMR2.93 billion in the first nine months of 2015

Credit rating agency Standard & Poor’s (S&P) has downgraded Oman’s sovereign debt as the drop in oil prices has apparently begun to take a toll on the country’s economy.

The agency kept a negative outlook for the Arab country and cut its long-term foreign and local currency sovereign credit ratings by one notch to BBB-plus from A-minus.

“We project that a period of sustained low oil prices will impair Oman’s fiscal and external balances more than we had previously expected,” S&P said on November 20.

The move came after the government posted a budget deficit of OMR2.93 billion in the first nine months of 2015, compared with an OMR136.1 million surplus during the same period a year ego.

Pressure mounts as oil derails

S&P lowered its long-term outlook for the country that heavily relies on hydrocarbon revenues.

“The negative outlook reflects our view that the government’s fiscal and external positions could deteriorate beyond our current expectations over the next two years,” said S&P as it anticipates a further fall in oil prices that would eventually put pressure on Oman’s economy.

The global benchmark Brent crude is now trading below $45 after plunging more than 50 per cent since last year, while the Omani government had assumed an average oil price of $75 per barrel for this year.

S&P projects Brent oil price to average nearly $63 per barrel over the next two years – down from $72 per barrel.

Oman, the largest oil producer in the region outside OPEC, increased oil output to a record high of 992,700 barrels per day in June, but this spike failed to effectively mitigate the negative ramifications from lower oil prices.

Meanwhile, another credit rating agency, Moody’s Investors Service, which rates Oman A-1, warned in August that the Sultanate’s high levels of government spending would not be sustainable over a multi-year period of low oil prices.

Imminent risk?

Oman has minimal overseas debt and the government remains able to sell Omani rial bonds without difficulty to local banks and investors, so the downgrade is likely to make little difference to Omani finances or markets for now, argues news agency Reuters.

But it could cost Oman if a protracted domestic borrowing programme eventually squeezes funds available in the domestic banking system, forcing the government to raise money abroad, the agency states.

Saudi downgrade

Last month, S&P cut its ratings for Saudi Arabia’s long-term foreign and local currency sovereign credit by one notch to ‘A+/A-1’ from ‘AA-/A-1+’.

The agency has predicted that the Kingdom’s general government fiscal deficit will clock 16 per cent of the GDP in 2015, up from 1.5 per cent in 2014, brought about by the sharp drop in oil prices. Saudi relies on hydrocarbon exports for 80 per cent of its revenue.

Following the S&P downgrade, Moody’s has also warned Saudi of its weakening fiscal position, while keeping its rating unchanged.

However, Saudi Arabia says that the nation’s financial deficit this year is manageable despite the low oil prices.

S&P keeps a stable outlook for Abu Dhabi, Qatar and Kuwait. Meanwhile, it has lowered Bahrain’s outlook to negative.

(OMR1 = $2.60 = AED9.54, at the time of publishing)