Fitch Ratings on Monday upgraded Oman’s issuer default rating (IDR) to "BB", with stable outlook, from "BB-", after improvements in key fiscal figures resulting in lesser external financing pressures and a sharp fall in government debt. The "BB" rating is two notches below investment grade. “Higher oil revenue will underpin budget surpluses in 2022 and 2023 and a sharp fall in government debt / gross domestic product to below the 'BB' median,” Fitch said in a statement on Monday. While the rating agency expects oil prices to decline over the medium term and some dilution of fiscal reform in 2022, it forecasts that Oman’s commitment to fiscal consolidation through the state's medium-term fiscal plan will be sufficient to limit renewed deterioration in public and external-finance figures. <a href="https://www.thenationalnews.com/business/economy/2022/08/09/oman-poised-to-post-first-yearly-fiscal-surplus-in-a-decade-in-2022-fitch-says/" target="_blank">Oman’s budget surpluses </a>are forecast at 5.5 per cent and 3.4 per cent of GDP in 2022 and 2023, respectively, its first surpluses since 2013, as oil revenue growth easily outweighs additional spending. The rating agency said it "assumes average Brent prices of $105 a barrel in 2022 and $85 a barrel in 2023", and expects crude and condensate output to grow by 8.8 per cent in 2022 and 3.5 per cent in 2023. For 2024, Fitch forecast a small budget deficit as lower oil prices (assumed to average $65 a barrel) and modest GDP growth offset gains from continuing fiscal reforms that will boost non-oil revenue and lower overall spending. For the current year, the rating agency forecasts spending to be higher than budgeted, due to fuel subsidies to cushion the domestic effects of high energy prices, slower reform of other subsidies and higher capex. The rating agency expects the <a href="https://www.thenationalnews.com/business/economy/2022/03/24/oman-to-use-oil-windfall-to-reduce-public-debt-sultan-haitham-says/" target="_blank">government debt to GDP</a> ratio to fall to 46.7 per cent in 2022 and 44.9 per cent in 2023, from about 70 per cent in 2020, supported by better budget performance and oil-fuelled nominal GDP growth in 2022. "Oman used part of the oil revenue windfall to buy back $0.7 billion of bonds maturing across 2025-2032; pre-pay the remainder of the $1.3bn pre-export financing facility taken out in 2017 and repay a maturing $3.6bn loan from China," Fitch said. “This [pre-payment of debt] has created some interest savings and the latter two payments have reduced the amount of variable-rate debt Oman holds and streamlined its debt portfolio.” The rating agency estimates Oman’s net foreign borrowing in 2022 be negative to about 4 per cent of GDP. External financing pressures on Oman have eased this year as the government has fulfilled its external financing requirement for 2022 and has reduced the size of maturities in 2023 to $1.7bn. “Oman's funding position is considerably more comfortable relative to recent years', although medium-term funding requirements remain sizeable and the country's level of external indebtedness is high,” Fitch said. Sovereign net foreign assets are expected to turn marginally positive in 2022, after deteriorating dramatically to minus 9 per cent of GDP in 2020 from 53 per cent in 2014. Fitch expects the Central Bank of Oman's gross foreign reserves to strengthen in 2022-2023 on the back of current-account surpluses and average above four and a half months of current external payments. Oman’s BB IDR rating is supported by an estimated real GDP growth of 4.4 per cent in 2022 from 3 per cent in 2021, driven largely by the oil sector, Fitch said. Non-oil GDP growth is expected to strengthen mildly, to about 3 per cent, after loosening pandemic-related restrictions, renewed population growth and a mild loosening of fiscal policy.