If oil prices stay high, averaging USD 90-95/barrel, Oman’s approved 2023 budget will probably result in another fiscal surplus, albeit smaller than in 2022, according to a forecast by Moody’s Investors Service.
The rating agency predicted that the newly established state-owned Integrated Gas Company might decide to fund some of its spendings through borrowing rather than by reducing natural gas revenue transferred to the government’s budget.
“The government debt metrics will likely continue to improve,” Moody’s predicted.
Nevertheless, the increased non-interest spending, excluding spending on oil and gas will render the government’s finances more susceptible to scenarios with lower oil prices.
“We estimate that Oman’s budget will likely slip into a deficit with an average oil price below USD 80 per barrel, and the improvements in the government’s debt and debt affordability metrics, achieved in 2021–2022, will gradually erode,” Moody’s said.
According to the projections, Oman experienced its first USD 2.98 billion budget surplus in close to a decade in 2022, which is credit-positive, according to the ratings agency.
However, the fiscal turnaround in 2022 was primarily the result of a windfall from high oil prices, which will make 2023’s budgetary improvement challenging to maintain, given that oil prices have already fallen below USD 80 per barrel since the year’s beginning from an average of about USD 100 per barrel in 2022 and the peak of USD 120 per barrel in June 2022.
The report observed that the government could lower its direct debt burden below the pre-COVID level thanks to the oil price windfall and fiscal reforms carried out after 2020.
The government used a portion of the 2022 surplus to retire some of its outstanding debt early, benefiting from a significant positive denominator effect on its debt-to-GDP and debt-to-revenue ratios.
Because of increasing nominal GDP and improved revenues as a result of higher oil prices, the government debt burden decreased to around 44% of GDP in 2022, according to Moody’s.
The International Monetary Fund predicted fiscal and external surpluses for Oman earlier this month, partly because of increased oil revenue, strict budgeting, and the implementation of value-added tax.