Last November, Oman’s Sultan Haitham announced a cap to local fuel prices with the aim of quelling rising inflationary pressures. This will, if maintained on a long-term basis, increase concerns about the government’s commitment to fiscal consolidation.
The rally in oil prices has opened the door for some of the larger Gulf economies to loosen fiscal policy, but the government in Oman will need to continue with efforts to repair their dire balance sheets. In the event fossil energy prices stay above USD 110/pb for a prolonged period of time, we would expect that self-help measures could prove sufficiently efficient to avoid further fiscal consolidation. Alternatively, we think that both countries will need to turn back to the rest of the Gulf for further financial support to help service their large external debts and keep dollar pegs intact.
Oman is among the most energy-reliant sovereigns globally. Some sectors that are particularly affected by the coronavirus, such as tourism and hospitality, are more important for its economy than in many other energy-producing countries. That said, with energy prices increasing and as mobility restrictions are gradually lifted across the world, we think Oman’s sovereign bond prices should remain supported.
This makes these bonds attractive for risk-tolerant investors. We remain relatively positive on Oman’s medium-term credit rating, while we stay more cautious for long-term durations.
GDP forecast 2024: 2.75 %