DUBAI May 12 Standard & Poor's cut Oman's
credit rating to junk on Friday, saying low oil prices had
eroded the country's external reserves to the point they could
no longer offset the threat of low oil prices.
The downgrade made Oman the second of the Gulf's wealthy
oil-exporting states to drop below investment-grade because of
cheap crude. Bahrain was last year cut to junk status by all
three of the major credit ratings agencies.
S&P said on Friday that it was lowering Oman's sovereign
rating by one notch to BB+ from BBB- with a negative outlook,
meaning there was a substantial chance of a further downgrade.
"The negative outlook reflects the potential for Oman’s
income level to weaken and for its fiscal and external positions
to deteriorate," S&P said.
The other two major ratings agencies have higher assessments
of Oman than S&P. Moody's Investors Service rates the country
Baa1 with a stable outlook, three notches above S&P, while Fitch
Ratings has a BBB rating with a stable outlook, two notches
Many analysts and traders of Omani debt, however, have been
preparing for the possibility of downgrades. Its financial and
hydrocarbon reserves are much smaller than those of neighbours
such as Saudi Arabia, giving it less room to cope with large
state budget deficits caused by cheap oil.
S&P said it expected Oman to continue running sizeable
current account deficits, making it a net external debtor by
2020. It also said the country might suffer a "disruptive period
of uncertainty" if the royal family did not quickly agree on a
successor to Omani leader Sultan Qaboos, who is 76.
Despite the weakening of its finances, Oman has shown it is
still able to borrow large sums from international markets. In
March the government sold $5 billion of bonds, and this month
banking sources said it was seeking a $3.6 billion loan from
But Bank of America Merrill Lynch (BofA) said in a report
last month that the Omani rial's peg to the U.S. dollar
was under threat from the country's large deficits.
Official data suggests Oman's net foreign reserves are
around $11 billion, excluding $5.5 billion in three-year
sovereign deposits from Iran and $2 billion placed with the
Omani central bank by Oman's top sovereign wealth fund, BofA
"We expect the Iranian deposits to be fully redeemed over
the coming years, thus likely increasing external financing
needs," it added.
Reacting to S&P's downgrade, Oman-based United Securities
said recent austerity measures by the government were likely to
cut the budget deficit more than expected.
It also said S&P was too pessimistic in not expecting major
inflows of foreign direct investment through 2020. Development
of a huge industrial zone at Duqm, on the country's southern
coast, is soon likely to attract sizeable investment, it said.
(Reporting by Andrew Torchia, editing by G Crosse)