Mubasher: Moody’s Investors Service slashed Oman’s credit rating to junk, with a negative outlook on the back the GCC nation’s fiscal challenges due to moderate oil prices.

The US rating agency lowered Oman’s long-term issuer and senior unsecured bond ratings to Ba1 from Baa3, Moody’s lowest investment-grade rating, according to a statement late on Tuesday.

“The key driver of the downgrade is Moody’s expectation that the scope for fiscal consolidation will remain more significantly constrained by the government’s economic and social stability objectives than it had previously assessed,” the statement added.

Moody’s noted that Oman, the Middle East’s biggest non-OPEC producer, could face external vulnerability as outsize fiscal deficits will contribute to wide current account deficits.

The negative outlook highlights the risk that “foreign investors’ willingness to finance Oman’s large deficits at relatively low costs could weaken, exacerbating the sovereign’s external vulnerability and raising government liquidity pressures,” the rating agency said.