Oman: Oman’s economic outlook for this year has been downgraded by the International Monetary Fund (IMF), indicating a slowdown in the country’s growth. The Sultanate’s economy, which is closely tied to the hydrocarbon market, is projected to expand by only 1.3% this year, a significant decline compared to the 4.3% growth experienced in 2022.
According to the IMF, the fluctuations in Oman’s GDP reflect various factors, including oil production cuts by OPEC+ and moderate growth in the non-hydrocarbon sector. The latter is primarily influenced by a recovery in construction activity, although it remains subdued. Additionally, the global economic slowdown and tighter financial conditions also contribute to the economic challenges faced by Oman.
While the current year may present obstacles, there is optimism for a rebound in 2023, with GDP expected to grow by 2.7%. Furthermore, non-hydrocarbon growth is projected to increase to 2% in 2023 and 2.5% in 2024, surpassing the growth rate recorded in 2022.
In terms of inflation, Oman has experienced a decline, with headline inflation easing from 2.8% in 2022 to 1.1% by April 2023. This decline can be attributed to lower food inflation and the strength of the US dollar.
Cesar Serra, who led the IMF team during their visit to Oman, acknowledged the positive impact of fiscal consolidation and substantial oil windfalls on the country’s fiscal and external positions. The fiscal balance reached a surplus of 7.5% of GDP in 2022 and is expected to remain in surplus in the medium term, aided by favorable oil revenues and fiscal measures implemented under the authorities’ Medium-Term Fiscal Plan.
Remarkably, Oman has made significant progress in reducing its central government debt, with the debt-to-GDP ratio declining from 61.3% in 2021 to 40% in 2022. Moreover, state-owned enterprises (SOEs) have also reduced their debt, with the debt-to-GDP ratio falling from 40.7% in 2021 to 28.8% in 2022.
This improvement can be attributed to asset divestments, enhanced performance, and debt repayments, further bolstered by ongoing reforms in the sector and the management of substantial assets by the Oman Investment Authority.
Looking ahead, the IMF emphasizes the importance of Oman’s structural agenda, outlined in Oman’s Vision 2040, which aims to support private sector-led growth and ensure fiscal and external sustainability.
Moreover, the IMF reported that priority areas include enhancing labor market flexibility, strengthening social protection, improving tax collection efficiency, implementing robust medium-term fiscal frameworks, enhancing the performance and transparency of the SOE sector, fostering an investor-friendly business environment, promoting digitalization, developing the financial sector, and investing in green energy to address climate challenges and capitalize on the global energy transition.
While the near- to medium-term outlook appears favorable, risks remain, particularly concerning the volatility of oil prices. A sharp decline in oil prices could pose a significant challenge to growth, fiscal stability, and external positions.