The International Monetary Fund (IMF) has released a report on the Omani economy, highlighting growth, low inflation, and policy priorities.
- Omani Economy Highlights
The Omani economy continues to display positive growth, maintaining low levels of inflation, as stated by the International Monetary Fund (IMF) in their recent report. The assessment was made during a visit by a team from the IMF, who visited Muscat from June 6-14, 2023, to discuss Oman’s economic and financial developments, outlook, and policy priorities. Led by Cesar Serra, the visit aimed to provide insights into Oman’s economic landscape.
- Growth and Projections
Oman’s real GDP experienced a growth rate of 4.3% in 2022, primarily driven by the expansion of the hydrocarbon sector. However, it is projected to slow down to 1.3% in 2023 due to oil production cuts by OPEC+ and moderate growth in the non-hydrocarbon sector. This moderation is attributed to recovering but still subdued construction activity, a global economic slowdown, and tighter financial conditions. Nonetheless, the non-hydrocarbon sector is expected to grow by 2% in 2023 and 2.5% in 2024, an improvement from the 1.2% growth in 2022.
- Inflation and Fiscal Position
Headline inflation decreased from 2.8% in 2022 to 1.1% by April 2023, primarily due to lower food inflation and a stronger US dollar. The report also emphasizes that substantial oil windfalls and fiscal consolidation have positively impacted Oman’s fiscal and external positions. In 2022, the fiscal balance achieved a surplus of 7.5% of GDP, and this surplus is expected to be maintained in the medium term, supported by favorable oil revenues and fiscal measures outlined in the Medium-Term Fiscal Plan.
- Debt Reduction and Asset Divestments
Oman has made significant progress in reducing its central government debt as a share of GDP, which declined from 61.3% in 2021 to 40% in 2022. The authorities utilized the oil windfall to repay government debt, resulting in a notable reduction. State-owned enterprises (SOEs) also experienced a decline in debt as a share of GDP, decreasing from 40.7% in 2021 to 28.8% in 2022. This reduction was facilitated by asset divestments, improved performance, and debt repayments. The Oman Investment Authority’s management of substantial assets and ongoing reforms in the SOE sector have effectively mitigated risks.
- Current Account Surplus and Reserves
In 2022, the current account recorded its first surplus since 2014, amounting to 5.2% of GDP, driven by oil and non-oil exports. The IMF projects that the current account will remain in surplus over the medium term. Additionally, the Central Bank of Oman’s gross international reserves stood at $17.6 billion in 2022, equivalent to 4.7 months of prospective imports.
- Sound Banking Sector
The report highlights the soundness of the banking sector, with profitability recovering from pandemic lows. Banks demonstrate ample capital and liquidity buffers, while asset quality remains strong. Credit to the private sector continues to expand, indicating a positive trend.
- Outlook and Risks
The near- to medium-term outlook for Oman’s economy is favorable, with balanced risks. On the upside, accelerated production at the Duqm refinery project and potential surges in oil prices due to supply and demand imbalances could boost growth, fiscal position, and external indicators. Furthermore, the implementation of Vision 2040 reform plans and increased foreign direct investments from regional partners would have positive effects. However, potential downside risks include a sharp decline in oil prices caused by a severe and prolonged global economic slowdown, reduced demand for hydrocarbons due to a faster-than-expected global energy transition, and pressures to spend the oil windfall.
- Vision 2040 Priorities
Looking ahead, Oman’s Vision 2040 structural agenda will focus on supporting stronger, private sector-led, job-rich non-hydrocarbon growth while ensuring fiscal and external sustainability. Priority areas identified include greater labor market flexibility, enhanced social protection and insurance, improved tax collection efficiency, strengthened medium-term fiscal frameworks, enhanced performance and transparency of the SOE sector, creation of an investor-friendly business environment, acceleration of digitalization, development of the financial sector, and investments in green energy to address climate challenges and leverage the global energy transition.