S&P said it projects a sharp increase in Oman's general government and current account deficits over 2015-2018 period and expects that trend growth in real per capita GDP will remain materially below that of peers.

'These factors were included in the downside scenario of our previous review published on May 22 and we have therefore lowered our long-term ratings on Oman to BBB+' the global ratings agency said in a statement on Friday.

'Since our review in May we have lowered our Brent oil price assumptions to average US$63 per barrel in 2016-2018 from US$72 per barrel. This shift in our assumptions alongside the much weaker-than-expected

fiscal and external data out turns over the first half of 2015 have led us to materially revise our key credit metrics for Oman for 2015-2018'.

Oman posted a budget deficit of RO2.68bn during the first eight months of 2015 (about 16 per cent of GDP estimated over the same period) compared with an RO205.7mn surplus reported for the same period a year earlier. In the first eight months of this year government revenues fell by 36 per cent compared with a year ago as oil proceeds declined by 46 per cent S&P said.

'These results are much worse than we had expected and we now forecast a general government deficit of about 15 per cent of GDP in 2015. Our general government balance forecasts include an estimate of the government investment returns' it said.

S&P said that the government has limited room for spending cuts given that nearly 50 per cent of spending relates to public-sector wages and subsidies and exemptions which are typically difficult to reduce.

'We expect some cuts to outlays on subsidies as well as the postponement of some defence spending and lower-priority capital expenditures in the 2016 budget. We understand that the 2016 budget will be based on an oil price assumption of US$55 per barrel compared with US$75 per barrel in 2015' S&P said.

The Omani government has committed to increasing non-hydrocarbon-related tax revenues over the medium term S&P said. It added 'As a result we expect the general government deficit to average nearly 12 per cent of GDP during 2015-2018. We assume that deficit financing will result in an annual average increase in Oman's government debt of some three per cent of GDP a year over 2015-2018. We also estimate that the government's net asset position will fall from 59 per cent of GDP in 2015 to 19 per cent in 2018'.

The ratings agency has forecasted annual average real GDP growth of 2.6 per cent a year in 2015-2018 chiefly based on a still-positive contribution to growth from net exports in 2015 and 2016 and a recovery in domestic consumption thereafter.