July 28 (Reuters) - Moody's Investors Service downgraded Oman's long-term bond rating to Baa2 from Baa1, citing the country's limited-than-expected progress towards addressing "structural vulnerabilities".

The Oman government's finances and external accounts remain highly vulnerable to oil price swings, Moody's said, changing its outlook to "negative" from "stable".

"... While the government has started to implement fiscal consolidation measures, Moody's believes the challenges are significant and that the plan is unlikely to address structural issues," Moody's said on Friday. ( http://bit.ly/2w7FMZz )

Oman's financial and hydrocarbon reserves are much smaller than those of neighbours such as Saudi Arabia, giving it less room to cope with large state budget deficits caused by cheap oil.

In May, Standard & Poor's also cut Oman's credit rating to junk, saying low oil prices had eroded the country's external reserves to the point they could no longer offset the threat of low oil prices. urn:newsml:reuters.com:*:nL8N1IE77N

Moody's lowered Oman's long-term foreign-currency bond ceiling to Baa1 from A3 and its long-term foreign-currency bank deposit ceiling to Baa2 from Baa1.

On Friday, Moody's also downgraded Bahrain's long-term issuer rating to B1 from Ba2, with a negative outlook. urn:newsml:reuters.com:*:nL3N1KJ5I5

(Reporting by Pranav Kiran in Bengaluru; Editing by Maju Samuel) ((Pranav.Kiran@thomsonreuters.com; UK: +44 20 7542 1810; Outside UK: +91 80 6749 9226; Reuters Messaging: Reuters Messaging: pranav.kiran@thomsonreuters.com@reuters))

Keywords: OMAN RATINGS/MOODY'S