S&P Global Ratings said today that Oman's newly appointed sultan has a narrowing window to address the country's fiscal and economic challenges, amid a backdrop of weak oil prices. Following a smooth transition of power in Oman (BB/Negative/B), public statements by Sultan Haitham bin Tariq al-Said affirmed the expectation of broad policy continuity.
Our negative outlook on Oman reflects the risk that, in the absence of substantial fiscal measures to curtail the government deficit, fiscal and external buffers will continue to erode. Sultan Qaboos bin Said, the longest serving leader in the Middle East, passed away on Jan. 11, 2020, following almost 50 years of rule. The succession of his 65-year old cousin, Haitham bin Tariq al-Said, proceeded smoothly.
The Royal Family Council chose to open the sealed letters that contained the name of Sultan Qaboos' chosen successor within hours of his passing, instead of internally deliberating for up to three days. The swift appointment reduced political uncertainty and potential regional interference.
We anticipate that Sultan Haitham will face a difficult trade-off in the coming months between addressing social concerns, partly arising from weak growth and high youth unemployment, and rising fiscal, external, and funding pressures. Further delays in fiscal and structural reforms, including the introduction of value-added tax, could lead to higher deficits and rising government debt (see chart 1).
Oman's reliance on external debt, given the relatively small size of the domestic markets, is a key contributor to our negative outlook on the rating. A higher risk premium in the event of escalating regional geopolitical tensions could further pressure already-rising debt-servicing costs.
We await the outcomes of the new National Program for Fiscal Balance (Tawazun) set up in 2019, which has a clear mandate to stem the fiscal deficit over the medium term. We expect government policy and centralized decision-making structures in Oman to remain largely unchanged.
The sultan holds the offices of prime minister, chief of staff of the armed forces, minister of defense, finance, and foreign affairs, and chairperson of the board of governors at the Central Bank of Oman.