Oman’s financial fundamentals remain well-poised to support the economy and the risks to financial stability have declined, according to a new report published by the Central Bank of Oman (CBO).
“Oman has witnessed a series of favorable developments, which has culminated in positive rating actions by all major credit rating agencies during the first half of 2023,” the CBO’s Financial Stability Report (FSR) 2023 published recently said.
“These developments include notable improvements in fiscal performance, external account, real and nominal output, and debt sustainability,” the report further added.
On the global front, price stability has been in the limelight for some time now, prompting central banks to implement successive interest rate hikes. The ensuing tighter financial conditions may have a bearing on the pace of global economic recovery.
“In Oman, however, the inflation remained benign because of the prudent fiscal measure taken by the government, which complemented the monetary stance of the CBO,” the FSR report said.
Being an open economy, Oman is susceptible to external developments the report pointed out. “However, the Omani financial sector, characterized by its conservative nature, primarily concentrates on catering to the financing requirements of the domestic economy. Consequently, it has remained unaffected by the recent banking turmoil,” the FSR report said.
The CBO has attributed this to the strength of the Omani banking sector with its robust capital and liquidity buffers, coupled with rigorous regulatory and supervisory oversight. “These factors have bolstered the sector’s resilience, shielding it from the adverse impacts experienced elsewhere,” the report added.
Warning about the risks foreseen, the FSB report said that the exacerbation of geopolitical tensions, the realization of downside risks to economic growth, persistent inflation, tightening of financial conditions, or a disorderly correction of asset prices could amplify pre-existing vulnerabilities in the global financial system.
“These, in turn, could have some spillover effects on the Omani financial system as well. Nevertheless, the latest stress test results show that the Omani banking sector is remarkably resilient to a battery of adverse scenarios,” the report further said. The transition risks and shocks emanating from climate change and the shift towards net-zero emission are among the key emerging risks for financial stability.
CBO has formulated a preliminary roadmap aimed at fostering sustainable and green financing within the domestic financial system and is also actively encouraging financial institutions to develop policies that facilitate and promote green financing.
“Moreover, Central Bank of Oman is working on improving its analytical capabilities to better measure and model climate-related risks,” the FSB report said.