MUSCAT: Standard & Poor’s (S&P) Ratings Services lowered its foreign and local currency sovereign credit ratings on the Sultanate of Oman to ‘A-/A-2’ from ‘A/A-1’. The global ratings agency said its outlook on Oman remains stable. In view of the sharp fall in international oil prices in recent months, S&P said it has revised its oil price assumptions for the period 2015-2018 significantly downward.

‘In our view, the decline in oil prices has a significant impact on the outlook for Oman’s fiscal and external positions, given its high dependence on oil. For example, we now forecast a fiscal deficit equivalent to four per cent of Oman’s GDP in 2015, following five years of surpluses. Consequently, we are lowering the ratings on Oman to ‘A-/A-2’ from ‘A/A-1’’, S&P said in a statement.

The global ratings agency said that stable outlook on Oman reflects its view that the deterioration in nominal GDP and the fiscal and external positions will not substantially exceed its current expectations.

In December 2014, S&P had lowered its outlook on Oman to negative from stable, while at the same time it had affirmed country’s A-/A-1 long and short-term foreign and local currency sovereign credit ratings.

Prices for crude oil in spot and futures markets have fallen by over 50 per cent since June 2014.

‘As a result, we have revised our oil price assumptions significantly downward for the period 2015-2018. When we last reviewed our ratings on Oman, in December 2014, we expected Brent oil prices to average US$80 per barrel in 2015 and US$84 per barrel in 2015-2018. We now assume an average Brent oil price of US$55 in 2015 and US$70 in 2015-2018. Omani crude oil typically trades at a discount to Brent of around US$5’, S&P said.

Given the sultanate’s high dependence on oil, S&P has revised its forecasts for economic growth and the fiscal and external positions to incorporate the lower expected oil prices.

‘Since our December 2014 review of our ratings on Oman, we have reduced our real GDP growth forecasts for 2015-2017, to an average of 3.3 per cent a year from 3.6 per cent. Our forecasts for the current account balance saw a more significant revision; we now expect to see an average deficit equivalent to 3.7 per cent of GDP in 2015- 2018. Furthermore, we now anticipate larger fiscal deficits, equivalent to four per cent of GDP in 2015 and two per cent on average in 2016-2018’.

‘In line with the weaker forecast fiscal position, we now expect bigger rises in government debt, averaging an equivalent of just under one per cent of GDP a year in 2015-2018’, the ratings agency added.

S&P said Oman’s 2015 budget assumes an average price of US$75 per barrel for Omani crude in 2015, which is around US$25 higher than its current forecasts [assuming a US$5 discount to Brent oil]. ‘We think the government may revise its 2015 budget later in the year, which could cause us to change our assumptions for the fiscal position and government debt’.

SOURCE: Muscat Daily