S&P Global Ratings has revised its outlook on Oman to negative from stable. At the same time, it has affirmed the 'BBB-/A-3' long- and short-term foreign and local currency sovereign credit ratings on the sultanate.

It also noted that though Oman’s oil production increased to a record high of 358 million barrels in 2015 - a 4 per cent increase on the previous year, with exports rising by 5.5 per cent to 308 million barrels in 2015 – this increase failed to effectively mitigate the negative effect of lower oil price.

“The outlook revision reflects that Oman’s fiscal consolidation could take longer than we expect,” the agency said in a statement. “We meanwhile assume that government financing needs will largely be funded externally due to the sultanate's narrow domestic capital markets. As a result, the economy’s external debt could exceed its liquid external assets by more than we anticipate, thereby limiting buffers to offset external pressures.

The widening of Oman’s current account deficit and deterioration in its external position has moved in tandem with the worsening of the government’s fiscal position, it noted.

“With government spending remaining relatively high in the context of the sharp decline in government oil revenues, import levels remain broadly supported at levels prior to the sharp decline in oil prices in mid-2014. 

“However, oil export revenues have also declined sharply and we expect the current account deficit to reach double-digit levels as a percentage of GDP for most of the period to 2019. 

“We expect these current account deficits to be largely financed by a sharp increase in government external debt. Should larger fiscal deficits and related wider current account deficits result in external debt exceeding liquid external assets to a greater extent than we expect, we could lower the ratings. In our view, this would suggest a material weakening of Oman’s external buffers available to offset external pressures,” it said.

The credit rating agency said Oman’s fiscal deficit was expected to significantly widen to close to 20 per cent of GDP in 2016, compared with its earlier estimate of 13 per cent of GDP.