Understanding Oman’s GDP: Trends, growth, and future outlook

By the end of Q2 2024, Oman's GDP at current prices recorded a rise of 2.6 percent, reaching OMR20,974.5 billion

The Sultanate's Vision 2040 aims to reduce reliance on oil by promoting economic diversification.

Published: Tue 3 Dec 2024, 8:00 AM

Last updated: Mon 2 Dec 2024, 5:31 PM

Oman, located on the southeastern coast of the Arabian Peninsula, has a diverse economy that has evolved significantly over the past few decades. The Gross Domestic Product (GDP) of Oman is a crucial indicator of its economic health and development. This overview explores the components of Oman’s GDP, its recent growth trends, and the factors influencing its economic landscape.

Components of Oman’s GDP

Oman’s GDP is composed of several key sectors, each contributing to the overall economic output:

Oil and gas: This sector remains the backbone of Oman’s economy, accounting for a significant portion of GDP. While Oman is not among the largest oil producers in the Gulf region, it maintains stable production levels. The government focuses on enhancing oil recovery techniques and exploring new fields to sustain this vital sector.
Non-oil industries: In recent years, Oman has made concerted efforts to diversify its economy away from oil dependency. The non-oil sectors, including manufacturing, tourism, and logistics, have seen substantial growth due to various government initiatives aimed at creating a more balanced economic structure.
Agriculture and fisheries: Although these sectors contribute a smaller percentage to GDP compared to oil and gas, they are essential for food security and employment. The government supports sustainable practices to enhance productivity in these areas.
Services sector: This sector, which includes finance, education, healthcare, and tourism, has been expanding rapidly. Investments in infrastructure and services aim to improve the quality of life for citizens and attract foreign investment.

Economic growth trends

Oman’s GDP growth has experienced fluctuations due to various global and domestic factors:

Recent performance

Second quarter of 2024: By the end of the second quarter of 2024, Oman’s GDP at current prices recorded a rise of 2.6 percent, reaching OMR20,974.5 billion, compared to OMR20,437.2 billion in the same period of 2023. The value added of oil activities decreased by 1.4 percent to OMR7,218.3 billion, with crude petroleum activities declining by 2.4 percent to OMR6,120.3 billion, while natural gas activities increased by 4.5 percent to OMR1,098.0 billion. Total non-petroleum activities increased by 5 percent to OMR14,419.2 billion.

First quarter of 2024: The Sultanate of Oman’s GDP at constant prices increased by 1.7 percent in the first quarter of 2024, reaching OMR9.537 billion ($24.77 billion), compared to OMR9.37 billion ($24.34 billion) in the corresponding period of 2023. Crude petroleum activities declined by 3.3 percentpercent to OMR2.55 billion, while natural gas activities experienced a 3 percent increase, reaching OMR437.1 million. Non-oil activities grew by 4.5 , rising from OMR6.5 billion in Q1 2023 to OMR6.8 billion in Q1 2024. Industrial activities increased from OMR1.88 billion to OMR1.98 billion, and service activities reached OMR4.59 billion.

In 2023, Oman experienced a modest GDP growth of 1.3 percent, down from a significant rebound of 9.6 percent in 2022. The non-hydrocarbon sector grew by 2.4 percent, while the hydrocarbon sector saw only 0.4 percent growth, largely due to OPEC+ production cuts. Notably, crude petroleum output declined by 0.1 percent, whereas natural gas increased by 3.1 percent.

Diversification efforts

The Sultanate’s Vision 2040 aims to reduce reliance on oil by promoting economic diversification. This long-term strategy has led to increased investments in non-oil sectors, contributing to GDP growth. The government has also focused on enhancing the business environment to attract foreign direct investment (FDI).

Impact of COVID-19

The global pandemic severely affected Oman’s economy, leading to a contraction in GDP in 2020. However, the economy showed signs of recovery in 2021 as restrictions eased and oil prices rebounded, aided by government stimulus measures and vaccination campaigns.

Factors influencing Oman’s GDP

Several factors influence the GDP of Oman:

Global oil prices: The economy’s dependence on oil makes it vulnerable to fluctuations in global oil prices. A sustained increase in oil prices can boost government revenues and stimulate economic growth.
Government policies: Policies regarding economic diversification, investment in infrastructure, and support for small and medium-sized enterprises (SMEs) are critical for fostering a resilient economy.
Geopolitical stability: Oman’s strategic location and relatively stable political environment make it an attractive destination for foreign investment, although regional tensions can pose risks to economic stability.
Technological advancements: Embracing technology and innovation is vital for enhancing productivity across various sectors. The government promotes digital transformation initiatives to improve efficiency and competitiveness.

IMF staff discuss Oman’s economic progress and future outlook

An International Monetary Fund (IMF) staff team, led by Mr. César Serra, conducted discussions in Muscat for the 2024 Article IV consultation from October 30 to November 13. Mr. Serra reported that Oman’s economy is expanding, supported by favorable hydrocarbon revenues and ongoing reforms. Economic growth was 1.2 percent in 2023 and accelerated to 1.9 percent in the first half of 2024, despite OPEC+ oil production cuts. The nonhydrocarbon sector grew by 1.8 percent in 2023 and 3.8 percent in early 2024, driven by construction, manufacturing, and services. Inflation decreased to 0.6 percent from 0.9 percent in 2023, and Oman’s sovereign credit rating was recently upgraded to investment grade due to improved economic fundamentals.

The economic outlook is positive, with growth expected to stabilize at 1.2 percent in 2024 before rebounding in 2025, aided by increased hydrocarbon production and nonhydrocarbon growth. Fiscal and current account surpluses are anticipated to continue, although they may decrease as oil prices soften. However, the outlook faces uncertainties from oil price volatility and global economic risks.

Oman is pursuing prudent fiscal management, maintaining a nonhydrocarbon primary deficit of 29 percent of nonhydrocarbon GDP in 2024. Efforts to enhance nonhydrocarbon revenues through tax reforms and subsidy reductions are crucial for financing growth and diversification. The exchange rate peg remains a credible policy anchor, and the banking sector is stable with strong profitability and asset quality.

Reforms under Oman Vision 2040 are advancing, including the rollout of a new social protection law and labor market reforms. Initiatives to improve the business environment and promote renewable energy are also in progress. The IMF team expressed gratitude to the Omani authorities for their cooperation and hospitality.

Looking ahead

Oman’s GDP reflects the country’s ongoing efforts to diversify its economy and reduce reliance on oil revenues. While the oil and gas sector remains a significant contributor, the growth of non-oil industries and services is crucial for sustainable economic development. The government’s proactive approach to economic diversification, coupled with favorable global oil prices, will play a pivotal role in shaping Oman’s economic future.

As Oman continues to navigate the challenges and opportunities in the global economy, its GDP will serve as a key indicator of progress and resilience.