Moody’s cuts Oman’s credit rating to junk

We believe that Oman will still be able to access international debt over our outlook period Monica Malik, chief economist at Abu Dhabi Commercial Bank

dubai — Moody’s cut Oman’s credit rating to junk with a negative outlook, citing fiscal challenges at a time of moderate oil prices in a move set to keep its borrowing costs high.

Oman’s state coffers have been hit hard by a slump in oil prices in recent years, resulting in a wide budget deficit that it has struggled to tame and leading Fitch and S&P to cut Oman’s rating to junk over the past two years.

Moody’s said in a statement on Tuesday that Oman could face external vulnerability as wide fiscal deficits will contribute to wide current account deficits, perpetuating Oman’s dependence on steady inflows of external financing.

Oman’s bond yields rose on Wednesday, by around 8 basis points on short- and mediumterm paper, though the move was more subdued at the long-end of the curve.

One debt trader said the downgrade was already factored in as Oman bonds had been trading in line with other non-investment grade credits since last year.

“The market needs to see some signs from Oman to give it confidence that it’s going to tackle the large fiscal deficit,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

“We believe that Oman will still be able to access international debt over our outlook period, though access could be impeded in the medium term if reforms to narrow its twin deficits are not implemented,” she added.

For 2019, the oil producer has projected a budget deficit of OR2.8 billion ($7.3 billion) or 9 per cent of gross domestic product, assuming an average oil price of $58 per barrel.

Malik said recent reported comments by an Omani official that privatisation will help partly support funding requirements this year sounded “optimistic,” and the country will likely have to tap the debt market.