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IMF lowers Oman's economic outlook for this year

Sultanate's economic fortunes remain largely tied to hydrocarbon market

Oman’s economic growth is likely to slow down this year to 1.3 per cent as compared to 4.3 per cent in 2022, the International Monetary Fund (IMF) said on Tuesday.

The country’s GDP is expected to rebound next year to 2.7 per cent. The fluctuations reflect “oil production cuts by OPEC+ and moderate growth in the non-hydrocarbon sector due to recovering but still subdued construction activity, a slowdown in global economic activity, and tighter financial conditions,” the IMF said in a statement released after a staff team visit to the sultanate earlier this month.

Non-hydrocarbon growth is projected to rise to 2 per cent in 2023 and 2.5 per cent in 2024, from 1.2 per cent in 2022. Headline inflation eased from 2.8 per cent (year-over-year) in 2022 to 1.1 per cent by April 2023 (year-over-year), reflecting lower food inflation and a stronger US dollar.

“Substantial oil windfalls and fiscal consolidation have boosted fiscal and external positions. The fiscal balance reached a surplus of 7.5 per cent of GDP in 2022 and is expected to remain in surplus over the medium term on the back of favorable oil revenues and fiscal measures under the authorities’ Medium-Term Fiscal Plan,” said Cesar Serra, who led the IMF team .

Alongside, central government debt as a share of GDP declined significantly from 61.3 per cent in 2021 to 40 per cent in 2022, as the authorities used the oil windfall to repay government debt. “State-owned enterprises (SOEs) debt as a share of GDP declined from 40.7 per cent in 2021 to 28.8 per cent in 2022, on the back of asset divestments, improved performance, and debt repayments, with risks mitigated by substantial assets under Oman Investment Authority’s management and ongoing reforms in the sector,” the IMF statement said.

The near- to medium-term outlook is favourable and risks to the outlook are balanced. On the upside, growth and fiscal and external positions would be spurred by accelerated production at the Duqm refinery project and by another surge of oil prices. On the downside, a sharp decline in oil prices represent a key risk.

“Going forward, the authorities’ structural agenda under Oman’s Vision 2040 will support stronger, private sector-led, job-rich non-hydrocarbon growth while entrenching fiscal and external sustainability. Priority areas include allowing for greater labour market flexibility, enhancing social protection and insurance, improving tax collection efficiency, strengthening medium-term fiscal frameworks, enhancing the performance and transparency of the SOE sector, creating an investor-friendly business environment, accelerating the pace of digitalization, developing the financial sector, and investing in green energy to help address climate challenges and leverage the global energy transition,” the IMF said in its report.