S&P Global Ratings, the New York-based credit ratings agency has confirmed its stable 'BB/B' long and short-term foreign and local currency sovereign credit ratings outlook for Oman.

In its analysis, S&P highlights both the positive uptick in economic growth amid rising oil production, and the threat of Oman’s narrowing, yet still elevated, fiscal and external deficits.

“Since widening to more than 18 per cent of GDP in 2016, Oman’s general government budgetary deficit is narrowing, and set to reach an estimated 7.4 per cent of GDP this year,” the report says.

“The stable outlook incorporates our expectation that Oman will manage to finance its fiscal and external deficits over our base case, while economic growth steadies at around 3 per cent per year.”

S&P cautions, however, that it could take negative rating action should Oman’s external debtor position deteriorates beyond expectations or the central bank's reserve levels will drop significantly.

As they stand, the ratings reflect potential support from neighbouring countries in the Gulf in the event, for example, of deterioration in the external reserves that support the Omani rial’s peg to the US dollar.

Conversely, fiscal reforms leading to slower external debt accumulation, such as Muscat’s medium-term plans for value-added tax (VAT) introduction and excise tax increases, could improve its sovereign ratings.

S&P notes: “If these more ambitious budgetary targets are met, both net public borrowing and net external financing would decline beyond current projections and benefit Oman's credit quality.”