The International Monetary Fund recently stated that Oman’s economic recovery was steady. Meanwhile, inflation remained contained, supported by favorable oil prices and constant reform momentum.
Economic growth and diversification
Oman’s economic recovery was aided by a robust 4.3 percent growth in 2022, predominantly driven by the hydrocarbon sector. The slowdown to 2.1 percent in the first half of 2023, attributed to OPEC+’s oil production cuts, did not affect overall progress. Meanwhile, non-hydrocarbon sectors, including agriculture, construction, and services, played a pivotal role in maintaining this momentum. The Omani non-oil sector growth accelerated from 1.2 percent in 2022 to 2.7 percent in the first half of 2023.
On the other hand, inflation receded from 2.8 percent in 2022 to a moderate 1.2 percent during January-September 2023. Moreover, wise fiscal management, coupled with high oil prices, led to fiscal and current account surpluses in 2022. Additionally, public sector debt saw a marked reduction, resulting in an upgrade of Oman’s sovereign credit rating.
Meanwhile, the exchange rate peg remains a credible monetary anchor. Ongoing efforts under the Monetary Policy Enhancement Project are set to strengthen the monetary policy toolkit. Oman’s banking sector displays resilience, with profitability rebounding to pre-pandemic levels, robust capital and liquidity ratios, and strong asset quality. Implementing the financial development agenda is seen as key to improving financing opportunities and supporting economic diversification.
Oman’s economy remains promising, projecting a growth slowdown to 1.3 percent in 2023 due to OPEC+-related cuts. However, a rebound is anticipated from 2024 onward, driven by increased hydrocarbon production and robust non-oil growth. Despite an expected decline in fiscal and current account balances over the medium term, surpluses are projected to persist.
Nevertheless, the positive outlook remains challenging. Uncertainties include factors such as oil price volatility, global economic and financial developments, and potential spillovers from conflicts.
Commitment to sustainability
Omani authorities remain committed to fiscal discipline while bolstering the social safety net. Efforts include a 3.4 percent reduction in the non-hydrocarbon primary deficit in 2023. That is supported by the implementation of a new social protection law. Thus, the goal is to enhance the resilience of vulnerable groups and ensure the sustainability of the unified pension fund.
Meanwhile, to establish fiscal sustainability and uphold intergenerational equity, Oman plans to enhance non-hydrocarbon revenues. It plans to implement tax administration reforms and phase out untargeted energy subsidies. Moreover, it is crucial to Institutionalize a medium-term fiscal framework to cement fiscal discipline and credibility.
Furthermore, efforts to implement Vision 2040 persist, with the new labor law improving working conditions and labor market flexibility. Ongoing reforms regarding the Oman Investment Authority, aim to create a more enabling business environment. Additionally, substantial investments in renewable energy and hydrogen align with Oman’s National Strategy for an Orderly Transition to Net Zero.
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