Standard & Poor’s has cut Oman’s credit rating to below investment grade as lower oil prices have reduced the sultanate’s external reserves.

The US-based ratings agency lowered its long-term ratings for Oman to a junk grade of BB+ from BBB- with negative outlook, meaning there is a chance of a further downgrade.

“In our view, Oman’s external buffers have weakened to the extent that they are no longer sufficient to mitigate the risk from the volatile export revenue base,” S&P said in its announcement.

Muscat relies on oil exports for the majority of its revenues and the drop in oil prices from the second half of 2014, leaving it financing account deficits with external debt.

S&P said it expects current account deficits of above 10 per cent of GDP in 2017 and 2018, before declining to 6 per cent of GDP in 2019 and 2020.

The ratings agency estimated Omani real GDP growth at 1.7 per cent in 2016 and forecasts average growth of 2017-2020 in the 2017-2020 period.

“However, in per capita terms, real GDP growth is well below peers, averaging -1.4 per cent due to high and volatile population growth,” said the announcement. “Due to the economic concentration in the hydrocarbon sector, estimated at close to 30 per cent of GDP, Oman’s economic performance remains vulnerable to oil prices, while the volume of oil production is likely to stagnate at around current levels.”

S&P said it would consider lowering its ratings if weaker economic growth resulting in Oman’s GDP per capita falling below current expectations. It also highlighted potential succession risks, with the country’s ruler Sultan Qaboos bin Said al-Said currently without an official successor.