S&P Global Ratings affirmed its 'BB/B' long- and short-term foreign and local currency sovereign credit ratings on Oman and said the outlook was negative.

S&P, the first of the major credit assessors to give Oman a non-investment grade, said that its “negative outlook reflects the risk that in the absence of substantial fiscal measures to curtail the government deficit, fiscal and external buffers will continue to erode.”

The global ratings agency said it could lower ratings on Oman in the next 6-12 months if the sultanate is unable to contain external debt accumulation related to still-sizable fiscal deficits, which S&P expect will continue to increase through 2022.

S&P expects high fiscal deficits to lead to an average change in net general government debt of 6.6 percent of GDP over the next four years.

"We could also consider a downgrade if the government's funding costs increase beyond our expectations, or if funding pressures rise, with sizable external debt maturities currently scheduled for 2021 and 2022," S&P analysts lead by Zahabia Gupta said in a report.

S&P could revise its outlook to stable if Oman can show a reduction in its external debt through fiscal adjustment measures or via privatisation of significant state-owned enterprises and assets.

“We could also revise the outlook to stable if economic growth prospects are significantly stronger than we currently anticipate,” it said.

Oman’s economy has been struggling since the collapse of oil prices in 2014, forcing the government to join other GCC nations in tapping international debt markets to stop budget shortfalls.

S&P's view of Oman's creditworthiness is constrained mostly due to the kingdom's heavy reliance on the hydrocarbon sector and that the economy is subject to global oil industry dynamics.

(Writing by Seban Scaria seban.scaria@refinitiv.com, editing by Daniel Luiz)

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