Previous Quarterly Editions
Expropriation Risk: 40 41 41 41 ► Political Violence Risk: 36 36 36 37 ▲ Terrorism Risk: 5 5 5 5 ► Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 47 47 47 47 ►
TREND ►
Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Unlike its Gulf neighbours, Oman is vulnerable to the direct negative effects of climate change. Due to its long Indian Ocean coastline, the country has been negatively affected by several cyclonic storms, including Gonu in 2007. Climate change is likely to make such extreme weather events more severe in their effects.
Oman is improving its business environment for domestic and foreign investors, yet the country has struggled to attract foreign money outside the petroleum sector. That said, a Foreign Capital Investment Law passed in 2020 allowing 100% foreign ownership of companies may attract non-oil foreign investments. Even so, the entrenched economic interests of politically well-connected merchant families mean market access will be challenging.
The government is prioritising asset sales to help finance its structural fiscal deficit, such as selling a 49% share in Oman Electricity Transmission Company to China’s State Grid in December 2019. More asset sales are expected, with the moves towards privatisation, including public-private partnerships, and encouraging foreign investment, suggesting expropriation risks will be very low in coming years.
TREND ▲
In past years, Oman has seen bouts of popular anger on the streets, fuelled mainly by rising unemployment and perceptions of official corruption. There have also been popular calls for jobs, higher salaries, reduction in the government’s media control and for reduced numbers of foreign workers, to help Omanis find private sector jobs. The late Sultan Qaboos raised the minimum wage and expanded the social safety net, among other responsive measures.
Under Sultan Haitham, societal pushback is likely against the public sector austerity and tax measures, and their wider economic effects, as demonstrated by the unemployment protests in May last year. Pushback is also likely against the phasing out of electricity and energy subsidies.
The current high oil price environment – partly a consequence of the disruption of the Russia-Ukraine crisis expected to last through to at least 2023 – will generate fiscal surpluses that will increase pressure on the Sultan to extend government largesse to Oman’s unemployed. Public sector hiring will also likely accelerate, in an effort to appease Omanis.
Return to contents Next Chapter
Oman has no terrorism policing and security provisions are effective. This situation is unlikely to change in coming years, although potentially signing a peace treaty with Israel could open the way for radical groups to target government and Western assets.
Oman has adequate buffers to finance goods imports and maintain the currency’s peg to the U.S. dollar. Reserves usually hover around the equivalent of six to seven months of imports. The stability of the reserves is sensitive to oil prices and is therefore rising with the current strength of oil-market conditions. Higher oil prices would help bolster reserves, but Oman will also need strong foreign investment inflows to pre-empt foreign exchange pressures that would arise from a future oil-price downturn, something that could happen if new oil exporters enter the market and when the Russia-Ukraine crisis is eventually resolved.
In 2020, Oman’s credit rating was downgraded deeper into junk territory by ratings agencies S&P, Moody’s and Fitch, given the oil price collapse at the time and COVID-19’s economic effects. The much higher oil prices now being seen will alleviate fiscal pressures and any sovereign default risks. Investors will also welcome the government’s plan to shift its fiscal position to surplus by 2025. At the end of last year, as oil prices rebounded, the three credit rating agencies correspondingly revised upwards their outlook on Oman.
In October 2021, tropical cyclone Shaheen brought torrential rains and high winds, killing 13 people and causing billions of dollars in damage. Shaheen is only the second tropical storm on record to strike through the Gulf of Oman since 1890 but as climate change increases sea temperatures in the region, such extreme weather events are likely to become less isolated in the coming years.
Yet despite the risks, climate change remains a low-key issue in Oman. Though it is the only Gulf state to have submitted quantitative indices in its Nationally Determined Contribution (NDC) under the Paris climate agreement, Oman’s updated NDC would actually result in higher emissions than under its previous target, due to a revised baseline.
Given a decade-long gas shortage and a smaller oil endowment than its Gulf peers, Oman has been anomalously tardy in its adoption of renewable energy. By end 2020, the country had installed just 159 megawatts of renewables capacity. However, the government has since awarded or put out to auction another 1.5 gigawatts (GW) of capacity. Additionally, the government has set a clear project pathway to achieving its near-term capacity goal of 3GW by 2025 through a series of solar and wind independent power projects, aiming to build on a strong track record of raising limited-recourse project financing for conventional power schemes.
In a government restructuring in Oman in August 2020, the Ministry of Environment and Climate Affairs was downgraded to an Environment Authority, with climate change affairs transferred to the Directorate General of Meteorology, under the Civil Aviation Authority. This clearly signals the government’s priorities lie elsewhere than climate change, namely in boosting expenditure on government services, particularly in education, health, housing and social care.
