Moody’s upgrades Oman sovereign ratings

Moody's Investors Service has raised Oman's local and foreign currency government bond ratings to A1 from A2. The country ceiling for foreign currency bank deposits has also been lifted to A1 from A2 and the country ceiling for foreign currency bonds has been raised to Aa2 from Aa3.
Oman's local currency country ceilings remain at Aa2. The outlook on the ratings is stable.
"The main driver of the rating change is the comparative strength of Oman's public finances within its rating peer group. Despite a sharp fall in average oil prices in 2009, the Omani government has managed to keep its fiscal account close to balance. Over the years, the government has accumulated a deep cushion of net financial assets which now imparts considerable fiscal flexibility," explained Tristan Cooper, a Vice President/Senior Credit Officer in Moody's Sovereign Risk Group.
In Moody's opinion, Oman's economy has navigated through the global economic crisis in relatively good shape. Although the country's real non-oil growth fell sharply in 2009, it remained in positive territory and close to the average growth rate for emerging markets as a whole.
Meanwhile, the hydrocarbon sector was boosted by the ongoing recovery in Oman's oil production. Oman's financial sector has been less affected than that of many other countries and Moody's has maintained its stable outlook on Oman's banking system. Moreover, Oman's modest level of overall indebtedness has limited its external vulnerability.
Given its robust economic performance in recent years, Oman's credit metrics have improved relative to similarly rated countries.
While noting Oman's significant credit strengths, Moody's recognises some important structural rating challenges. These include the relatively small size of Oman's economy, which limits its shock-absorption capacity, and its concentration on commodity exports. Oman has relatively lower hydrocarbon reserves per capita than other oil-exporting rating peers, which heightens the necessity of economic diversification and private sector job creation over the longer term.
Oman's sovereign ratings could come under pressure if oil production were to unexpectedly falter, international oil prices were to collapse for a sustained period, or there was a serious and destabilising regional political event.