Moody’s assigns provisional (P)Baa1 rating to Oman’s proposed USD global notes

FRANKFURT — Moody’s Investors Servic’e has assigned a provisional (P)Baa1 senior unsecured issuance rating to the proposed USD-denominated global notes to be issued by the Government of Oman. Moody’s expects to remove the provisional status and assign a definitive rating upon the closing of the proposed issuance and a review of the final terms. According to the draft transaction documents, the proposed global notes constitute direct, unconditional and unsecured obligations of the Government of Oman and rank pari passu with all other outstanding unsecured obligations. The proceeds of the notes are intended to be used for general budgetary purposes. Accordingly, Moody’s has assigned a provisional rating of (P)Baa1, in line with the government’s issuer rating of Baa1. Oman’s Baa1 long-term issuer rating incorporates the negative effects from low oil prices on the country’s economy, government finances, and the external payments position against high levels of per capita income and a still comparatively strong government balance sheet. Despite credit positive economic diversification efforts, Oman’s economy remains dependent on the oil and gas sector, and competitiveness remains under pressure. Although the drop in oil prices has reduced the share of the hydrocarbon sector in nominal GDP, it still accounts for almost one-third of GDP and more than half of total merchandise exports. Oman has the second-lowest level of proven reserves among oil producers from the GCC and the use of enhanced recovery technologies has increased production costs. The country’s ranking in the 2016-2017 World Economic Forum Global Competitiveness Index has declined to 66th out of 138 countries from 62nd out of 140 countries the year before, falling for the fourth consecutive year, and is the lowest of all GCC countries. As a result of government spending adjustments, real GDP growth rates will average only around 2.0% per year between 2016 and 2020, markedly lower than the 3.8% annual average between 2011 and 2015. Together with the fall in nominal GDP in 2015 and 2016 triggered by the collapse in oil prices, this will crimp government and private sector incomes. The International Monetary Fund (IMF) estimates Oman’s 2015 per capita income in purchasing power parity terms at $43,707, which is comparatively high in a global comparison but the lowest within the Gulf Cooperation Council (GCC). Oman’s key institutional strength scores, such as Rule of Law, Control of Corruption, and Government Effectiveness are broadly in line with the median scores for Baa-rated sovereigns. The government’s macroeconomic policies are generally sound but policy implementation can be slow because of Oman’s highly centralized political institutions. — SG