October 12, 2008

Moody issues annual sovereign report on Oman

Moody's Investors Service has explained in its new sovereign credit report on Oman that the country's investment grade A2 foreign and local currency government bond ratings with a stable outlook primarily reflect the very strong public finances, with the maintenance of a wide fiscal surplus and ongoing accretions to net official assets on the back of buoyant oil receipts. The ratings were last changed in July 2007 when they were upgraded from A3. Other A2 rated countries include Bahrain, Botswana, Chile, Korea and Poland.

Mr Tristan Cooper VP & senior analyst at Moody's said that "The favorable trend in Oman's government finances has continued. Moody's estimates that the overall fiscal surplus was around 10% of GDP in 2007 and that the level of net official foreign assets approached 80% of GDP at 2008 end. We project another wide fiscal surplus in 2008 given that average global oil prices are expected to exceed USD 90 per barrel, their highest ever annual average."

Mr Cooper said that, while the short to medium term outlook for Oman's public finances is therefore very sound, Moody's has some concerns with regard to the longer term prognosis in light of two factors. He added that "The first concern relates to inflation, which has risen significantly in recent years, reaching a 16 year high of 8.3% in December 2007. Rising costs and popular demands for expenditure increases to offset the effects of inflation, coupled with an ambitious public investment plan, are contributing to a marked loosening of fiscal policy. This will erode fiscal flexibility."

Mr Cooper further added that "Secondly, there are growing uncertainties over the long term for the country's hydrocarbon sector. Oman's crude oil production peaked in the late 1990s and has since been on a declining trend. While there is hope that the fall in crude production will finally be halted this year and possibly reversed, remedial action is increasingly costly. Meanwhile, Oman's gas production is failing to keep pace with burgeoning gas demand, constraining the growth prospects for the country's energy intensive industrial sector."