Muscat: Standard & Poor's (S&P) Ratings Services maintained its outlook for the Sultanate of Oman as stable, thanks to the country's strong net external and general government asset positions and prudent investment policies — factors that mitigate the risks to the economy due to its high dependence on hydrocarbons.
The agency has affirmed long- and short-term sovereign credit ratings for Oman at 'A/A-1'.
"The stable outlook balances the Sultanate's strong fiscal and external position against risks from structural and institutional weaknesses, which could hinder policymaking; a young population that could pose challenges for economic policy; and a limited monetary policy flexibility," the rating agency says in its report.
Real GDP growth
The rating agency expects real GDP growth to reach five per cent this year, underpinned by an increase in the oil production to touch an average of 0.94 million barrels per day (bpd) from 0.92 million bpd in 2012. The agency also believes that growth in the non-oil economy will remain robust, thanks to high investment and public and private consumption, estimating it at per capita GDP of $21,700 in 2013.
Steady expansion in the Sultanate's oil production since 2007 and large infrastructure and development investments have helped support overall economic growth, with real GDP growth averaging 6.5 per cent during 2007-2012.
Although real growth has been strong, the agency's estimate of Oman's weighted-average 10-year trend in real per capita GDP growth is below that of peers with a similar GDP per capita.
"The low growth in real per capita GDP largely reflects the high inflow of foreign workers boosting population growth numbers; migrant workers account for 44 per cent of the total population," the agency says.
"Expansion in recurrent public spending since 2011 has contributed to a steep narrowing in the government's fiscal surpluses from seven per cent in 2011 to 2.6 per cent in 2012 (including transfers to reserve funds and investment income)," the agency adds.
The agency also expects the government to register a surplus of 1.6 per cent this year, based on oil export price assumption of $105 per barrel.
For 2014-2016, the agency expects the surplus to average 1.9 per cent, based on an assumption of an average oil export price of $97 per barrel and contingent on a curtailment in government expenditure to an average level of 41.5 per cent of the GDP.
"The large oil windfall in recent years has helped further strengthen the Sultanate's external position, with the current account surplus reaching 10.4 per cent in 2012. We expect this to continue and estimate the surplus at 8.6 per cent of GDP this year," the agency adds.