Standard & Poor's Ratings Services yesterday affirmed its 'A' long-term and 'A-1' short-term sovereign credit ratings on Oman, signifying a "stable" outlook of the Sultanate's economy. "The ratings on Oman are supported by the government's strong fiscal position, together with the country's solid external finances and increasing wealth levels," said S&P's credit analyst Luc Marchand. They, however, remain constrained by the heavy economic dependence on hydrocarbons, geopolitical tensions in the region, and, in the longer term, comparatively low visibility regarding policy direction under a succession scenario, the international credit rating agency said. Standard & Poor's Transfer & Convertibility risk assessment was affirmed at 'AA-'. An S&P statement released yesterday said the government has prudently and transparently managed the windfall from a sustained period of high oil prices, leading to a general government surplus that it estimates at 8.8 per cent of the gross domestic product (GDP) in 2008. With the surpluses of the past few years, the government's net asset position increased to about 42 per cent of the GDP as at year-end 2008, which will be a crucial buffer to weather the negative impact on public finances of the expected sharp decrease in average oil prices in 2009 compared to 2008. The government's budget will turn into a deficit of 4.9 per cent of the GDP, decreasing its estimated liquid assets (mostly managed externally) to an approximately $25 billion from about $27 billion in 2008, said S&P, adding that the government debt remains modest at an estimated six per cent of GDP in 2009. "The stable outlook is based on our expectation that the high level of government assets, the expected increasing LNG exports, and the growth of the non-hydrocarbon sector will continue to mitigate concerns stemming from the current decline in oil prices and the decline in crude production in recent years," said Marchand. The outlook assumes that fiscal policy will remain oriented toward fulfilling Oman's development needs and limiting vulnerability to fluctuations in oil output and prices. The ratings agency also sounded caution on several fronts. It said Oman's ratings remain constrained by high economic dependence on hydrocarbons, which constitute the vast majority of fiscal revenues and exports, and about 51 per cent of the GDP in 2008. On the political front, the key challenges to creditworthiness remain a high level of unemployment among Omanis and the prevailing geopolitical tensions across the region. "We see inflationary pressures abating with the weakening of the economy, with an economic rebound expected to begin next year," S&P said. The agency said the ratings could go up if a secular decline in crude output was reversed or if the government strengthened its domestic tax revenue base significantly � through the introduction of value-added tax (VAT), for example. "Conversely, the ratings could come under downward pressure if the geopolitical or political situation were to deteriorate sharply, or if government assets were to decline more quickly than we forecast," it added.
