• Oman’s outlook changed from stable to negative by Moody’s
  • A1 government bond and various foreign currency ratings affirmed
  • Oversubscribed Central Bank bond issuance

Moody’s Investors’ Service has lowered Oman’s outlook from stable to negative on the basis of lower oil prices, while the A1 rating for government bonds remains unchanged.

Moody’s is basing its analysis on oil prices averaging $55 a barrel in 2015, gradually rising to $75 a barrel in 2018. Oman will have a lower deficit and stronger growth if oil prices recover faster than predicted.

The central bank of Oman is issuing RO200m ($519.5m) of ten-year government bonds with coupon rate of 4.50 per cent per annum on 23 February. The auction was oversubscribed by RO74.9m and the average yield equivalent per cent to the accepted price was 3.51 per cent at a price of RO108.295.

“The government proposes to finance the budget deficit by issuing long-term sukuk bonds and other instruments so as to activate the domestic capital market,” said Hamood Sangour al-Zadjali, executive president of the Central Bank of Oman to MEED. “The budget projections include a net borrowing of RO600m, out of which RO400m will be from the domestic market mainly in the form of bonds, and RO200m from abroad, taking advantage of the Sultanate’s good international credit rating.”

Moody’s expects Oman’s government debt to rise to more than 20 per cent of GDP by year-end 2016, from an estimated 8 per cent in 2013. However, it bases the A1 rating on Oman’s high assets to debt ratio, despite its dependence on hydrocarbon exports. Total government assets grew from RO8bn in 2004 to RO24bn by the end of 2013. This is equivalent to 80 per cent of GDP and around nine times outstanding government debt.

“On government develop bonds demand from domestic banks is strong, and the last auctions were oversubscribed,” says Steffen Dyck, Vice President and Senior Analyst at Moody’s. “Economic and fiscal developments depend to a very large degree on where oil prices go. At current levels, government debt will rise from this year because of large fiscal deficits, but debt levels are still lower than the median for A-rated sovereigns.”

Foreign currency ratings remain unchanged.

Moody’s expects average GDP growth to slow to 2.6 per cent a year until 2018, well below the Finance Ministry predictions of 5 per cent growth. This is down from the higher growth trend between 2004 and 2013, which averaged 4.7 per cent.

This follows Standard & Poor’s decision to lower Oman’s outlook from stable to negative in December 2014.

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