Fitch Joins Chorus of Alarm Over Oman’s Deficit, Funding Risks

(Bloomberg) -- Fitch Ratings added to the drumbeat of credit assessors warning Oman about its precarious public finances as it comes under strain from the collapse in crude prices and the coronavirus pandemic.

Under the assumption that Brent crude will average $35 per barrel, Oman will run a budget shortfall this year of over $10 billion, or around 16% of gross domestic product, according to a report on Monday. Fitch estimates Oman needed Brent at over $80 to balance the books last year. Following a downgrade in March, it rates the Gulf state at BB, two steps below investment grade, with a negative outlook.

The sultanate “faces a sharply higher fiscal deficit and drawdown of fiscal reserves this year,” Fitch analysts including Krisjanis Krustins said in the report. “The willingness of lenders to fund Oman’s large external financing needs will be critical to the sustainability of the country’s government finances and the stability of its currency’s U.S. dollar peg.”

Oman, often deemed to have the weakest economy in the six-nation Gulf Cooperation Council, is already under review for a potential downgrade at Moody’s Investors Service, following a cut by S&P Global Ratings in March.

Soon after succeeding a cousin in January who had ruled for five decades, Oman’s Sultan Haitham bin Tariq Al Said said that he plans to lower debt. The country’s budget was on track for its seventh straight year in the red even before suffering the combined shock of lower oil prices and the health emergency.

• Fitch expects the government’s funding needs in 2020 will be met mostly with a drawdown of over $5 billion from Oman’s State General Reserve Fund and more than $4 billion in new foreign debt.
• Foreign maturities of $1.2 billion will probably be met from the Petroleum Reserve Fund; Oman may also raise some new foreign debt from “non-market sources.”
• While SGRF assets could be depleted by 2021 should Oman get no foreign funding this year, the government would still have access to gross official foreign-exchange reserves, which were at $17 billion at end-2019.
• “However, reserves are also crucial to sustaining domestic confidence in the currency peg, and could be eroded quickly if that confidence falters.”

Most of Oman’s maturities in 2021-2022 are bank loans, and some of them may be refinanced “in the event of a lasting loss of access to the Eurobond market,” Fitch said. “The cost of international debt issuance is currently prohibitive for Oman.”

Fitch said its forecasts for Oman don’t take into account the possibility that it might receive financial support from other governments in the region or institutions such as the International Monetary fund.

“Such support might be available if Oman’s funding conditions continue to be stressed, and would strengthen its financing position and its capacity to tap international debt markets,” the analysts said.

©2020 Bloomberg L.P.