|15 January, 2020

Oman's fiscal challenges to remain post-succession: Fitch Ratings

Sultan Haitham could pursue bolder fiscal and economic reform

Image used for illustrative purpose. Aerial view of cars zooming on the highway near the sea.

Image used for illustrative purpose. Aerial view of cars zooming on the highway near the sea.

Getty Images/Pankaj & Insy Shah
(The following statement was released by the rating agency)

Fitch Ratings-Hong Kong-January 15: The elevation of Haitham bin Tariq al-Said as Oman's new Sultan will entail continuity of fiscal policies, Fitch Ratings believes. The rapid succession is in line with our long-standing assumption of a smooth transition from his cousin, Sultan Qaboos, who died January 10 aged 79. Twin fiscal and external deficits and rising indebtedness remain the key risks to Oman's BB+/Stable rating, which was affirmed in July 2019.

As the chosen successor of Sultan Qaboos and a senior member of the government and the royal family, we believe Sultan Haitham, who is 65, will adhere to previous policy approaches. He will also face many of the same constraints to reform as his predecessor, in particular the need to ensure Oman's security in an unstable region and to provide economic opportunities to a young and underemployed population. The speed with which he was chosen limits the risk of a substantial loosening of fiscal policy to support the leadership transition.

There is nonetheless a possibility that Sultan Haitham could pursue bolder fiscal and economic reform than his predecessor, who had suffered from ill health in recent years. Sultan Qaboos was pivotal to Oman's development during his nearly 50-year reign and held many senior positions, including central bank governor and prime minister, as well as those of the ministers of finance, foreign affairs and defence.

Preliminary 2019 data suggest that Oman's fiscal deficit decreased marginally to 8.4% of GDP last year, compared with the forecast of 9.8% in our last rating assessment. However, excluding proceeds from asset sales the deficit would have increased, amid falling oil revenue and higher spending. The government is budgeting for a higher deficit of 8.7% for 2020 despite its expectation of further asset-sale proceeds and some spending cuts. (This compares with a forecast of 8% for 2020 in our last assessment.) The 2020 budget is consistent with our previous assumption that government debt will rise above 60% of GDP in 2020 and that sovereign net foreign assets will become negative; both indicators will then be worse than 'BB' category medians.

On the external political front, Sultan Haitham has announced that he intends to continue Oman's policy of neutrality, which appears to have widespread support within the country. In Fitch's view, this policy - along with Oman's access to other sources of financing including debt issuance, asset sales and drawdowns from reserve funds - is one of the reasons why Oman, unlike Bahrain, has thus far not sought more financial support from the Gulf Cooperation Council.

Contact:

Krisjanis Krustins

Director, Sovereigns

+852 2263 9831

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road Central

Hong Kong

Jan Friederich

Senior Director, Sovereigns

+852 2263 9910

Duncan Innes-Ker

Senior Director, Fitch Wire

+852 2263 9993

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@thefitchgroup.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at . All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT . PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see ), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

More From Economy