DUBAI, Dec 20 (Reuters) - Ratings agency Fitch said on Monday it had revised Oman"s outlook to "stable" from "negative" as higher oil prices and fiscal reforms improve the balance sheet of the heavily indebted Gulf state. "The revision of the outlook reflects actual improvements in, and the expected evolution of, key fiscal metrics including government debt/GDP and the budget deficit," Fitch said in a statement. This was driven by "higher oil prices and fiscal reforms, and a lessening of external financing pressures relative to recent years even as external funding needs remain high", it added. A relatively small crude producer when compared to its wealthier Gulf neighbours, Oman is more sensitive to oil price swings, meaning it was hit especially hard by the pandemic-driven price crash in 2020. But higher oil prices this year, along with fiscal reforms, are expected to narrow state deficits and contain debt levels over the next few years. Oman said this month it expects its budget deficit to reach 5% of gross domestic product in 2022, well within the limits of a medium-term fiscal plan launched by the Gulf state last year to fix its finances. read more The budget deficit shrank to 3.4% of GDP this year from 16.1% last year, Fitch estimated, with hydrocarbon revenue having grown by a third. The agency expects government debt to decline this year to 67% of GDP from 71% of GDP last year, and to diminish further to 64% of GDP in 2022. "External financing pressures on Oman have eased relative to recent years, although funding requirements remain sizeable and Oman"s level of external indebtedness is high," it said. Oman had $4.6 billion of external debt due this year and external maturities will peak next year at $6.1 billion, the agency said, before moderating to an average of $3 billion between 2023 and 2026.