(MENAFN- Muscat Daily) Oman's economic strength remains 'high' based on a robust outlook for long-term economic growth which takes into account the government's efforts to diversify the economy away from hydrocarbon sector according to Moody's Investors Service.
In its latest credit analysis report on the sultanate Moody's said Oman's A1 rating with a stable outlook reflects the government's healthy financial position and country's robust growth outlook as well as its open trade and investment regime.
'We assess Oman's economic strength as high based on comparatively high levels of percapita income and a robust outlook for long-term economic growth assuming ongoing economic diversification' Moody's said.
The global ratings agency noted that material progress in diversifying the economy and government revenues away from oil and an abatement of regional political tensions would be credit positive for Oman.
Moody's however also noted that Oman's major credit challenges stem from its economic and fiscal vulnerabilities arising from a high reliance on the oil and gas sector which continues to contribute a significant share to GDP and government revenues.
It said that Oman's fiscal break-even oil price is among the highest in the region which limits Oman's fiscal headroom and leaves fiscal accounts highly vulnerable to a decline in oil prices.
IMF estimated Oman's fiscal break-even oil price at US$101.6 per barrel for 2014. 'At the same time Oman's proven reserves are some of the smallest among major oil producers and are also increasingly costly to explore' Moody's added.
Recently H E Salim al Aufi Undersecretary at the Ministry of Oil and Gas has said that the growing use of enhanced oil recovery (EOR) techniques to extract oil from the ground and inflation have led to a spike in the cost of oil production in Oman.
Moody's said that a track record of fiscal surpluses has kept government debt very low at less than ten per cent of Oman's GDP and has helped to build up sizeable government financial assets. It added that high domestic savings and a healthy banking sector complement the government's sound finances.
The ratings agency sees the government's sizeable net asset position as a key credit strength and Oman's healthy banking system poses only limited contingent liabilities to the government's balance sheet.
'Assuming only very gradual progress with regard to subsidy reform we expect that the government will face fiscal deficits from 2015 but not to an extent that undermines the government's financial strength' Moody's said.
For 2014 and 2015 Moody's has projected real GDP growth of 3.5 per cent down from an estimated 5.1 per cent in 2013 reflecting an expected slowdown in oil production.
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