WASHINGTON DC.
In a significant milestone for Oman’s economic recovery, Moody’s Investors Service upgraded the country’s sovereign credit rating to Baa3 from Ba1 on July 10, 2025, restoring its investment-grade status. This upgrade, marking the second such elevation in less than a year, reflects Oman’s substantial progress in reducing its public debt burden and enhancing fiscal resilience. The agency highlighted a decline in government debt to 35.5% of GDP in 2024, down from a peak of 80% in 2020, driven by prudent fiscal policies and higher oil revenues. This achievement, coupled with a stable outlook, underscores Oman’s improved macroeconomic indicators and its ability to withstand lower oil prices, a critical factor given the nation’s historical reliance on hydrocarbons.
The cornerstone of Oman’s fiscal improvement has been its disciplined approach to public spending and debt management. Government expenditure dropped to below 29% of GDP in 2024, compared to an average of over 41% from 2016 to 2020, reflecting significant spending restraint. This fiscal discipline has lowered Oman’s fiscal breakeven oil price to under $70 per barrel for 2024–2025, down from $84 per barrel in the prior period. Additionally, the government repaid $5 billion in external debt in 2023, reducing debt servicing costs from 9% of total revenue in 2021 to 7.2% in 2024. These efforts have bolstered Oman’s resilience to oil price volatility, with Moody’s noting that debt metrics would remain robust even if oil prices fall below $65 per barrel.
Oman’s economic diversification efforts have also played a pivotal role in its upgraded rating. Non-oil sectors, now contributing 70% of GDP, have shown robust growth, driven by tourism, manufacturing, and mining. Real GDP grew by 2.5% in the first quarter of 2025, supported by a fiscal surplus of 2.8% of GDP and a current account surplus of 2.1% in 2024. The government’s structural reforms, including plans for a 5% personal income tax by 2028 and investments in green hydrogen and liquefied natural gas, aim to further reduce reliance on oil, which still accounts for 34% of GDP and 76% of government revenue. These reforms signal a commitment to long-term economic stability, though Moody’s cautions that vulnerability to global oil demand fluctuations persists.
The Moody’s upgrade has had immediate financial market impacts, enhancing investor confidence in Oman’s sovereign bonds. The cost of default insurance on Oman’s government debt fell to a record low, with credit default swaps for five-year debt dropping to 86.4 basis points on July 11, 2025. Oman’s 6.5% 2047 sovereign bond, yielding approximately 4.8%, is poised to benefit from $10–$15 billion in passive inflows as the country’s debt is included in investment-grade bond indices like the J.P. Morgan GBI-EM Global Diversified. This inclusion is expected to attract institutional investors, further lowering borrowing costs and supporting Oman’s capital market development.
Despite these achievements, challenges remain for Oman to sustain its investment-grade status. The country’s economy is still exposed to oil price shocks, and geopolitical risks, such as its proximity to Yemen’s conflict, could strain resources. To secure further upgrades from Moody’s and Fitch, Oman must maintain fiscal surpluses, accelerate non-oil revenue growth, and ensure geopolitical stability. The government’s Medium-Term Fiscal Plan, expected later in 2025, will provide clarity on its commitment to these goals. For now, Oman’s ascent to investment-grade status marks a compelling opportunity for investors, with its bonds offering a blend of yield and stability, provided reforms continue and external shocks are managed effectively.
