Oman should implement medium-term plan to reduce fiscal vulnerabilities, IMF says

The country’s overall GDP is projected to grow around 2.5% in 2021

Oman was hit hard by lower oil prices and the coronavirus crisis last year. Silvia Razgova / The National

Oman needs to implement a firm medium-term plan to reduce fiscal vulnerabilities and put debt on a downward path, according to the International Monetary Fund (IMF).

The country, hit hard by the twin shock of lower oil prices and the coronavirus crisis last year, saw its economy contract by 2.8 per cent in 2020, with non-oil GDP shrinking by 3.9 per cent, the IMF said in a report on Tuesday.

“The authorities’ cautious approach toward reopening has helped contain the new cases since early 2021,” the lender said. “Fiscal, monetary, and financial support measures introduced by the government have been deployed to ease the burden on households, firms and banks.”

Oman’s central bank last year announced an 8 billion Omani riyal (Dh76.4bn) incentive package for financial institutions to ease the impact of the coronavirus on its economy.

The country’s overall GDP is projected to grow around 2.5 per cent in 2021 and non-oil GDP by 1.5 per cent, as it accelerates vaccine rollouts to contain the spread of the pandemic and oil prices move upwards.

Oman's fiscal balance is also expected to improve considerably over the medium term, from a deficit of about 19.3 per cent of GDP in 2020 to 2.4 per cent of GDP this year, on the back of higher oil prices and fiscal adjustment measures, the IMF said.

The current account deficit is also expected to decline to 0.6 per cent of GDP over the medium term, after rising to 13.7 per cent of GDP in 2020 due to fiscal consolidation and a higher trade balance surplus, it said.

However, the emergence of Covid-19 variants could prolong the impact of the pandemic on the global outlook and financial conditions, and thus intensify the economic impact on Oman, according to the lender. Volatility in oil prices would also have a significant impact on the outlook, it said.

Banks are well capitalised and liquid, despite a slight increase in non-performing loans and a decline in profitability, but credit risk is a concern going forward given the uncertain outlook, according to the lender. A prolonged pandemic could intensify corporate vulnerabilities.

“The Central Bank of Oman should continue to have a forward-looking assessment of banks’ asset quality and ensure adequate capital buffers to withstand credit risks if they materialise. Extending loan moratoria should be data-dependent and increasingly targeted to distressed but viable borrowers,” the IMF said.

Debt strategy

The fund also noted that the government had requested technical assistance to strengthen its fiscal framework and develop a medium-term debt strategy “to guide the government’s borrowing programme and provide more predictability to the financial system”.

Oman tapped debt markets in June, raising $1.75bn in 9-year US dollar denominated sukuk, Khatija Haque, head of research and chief economist at Emirates NBD, said in a note.

“Together with the $3.25bn raised in January, Oman’s financing needs for this year have largely been met,” she said.

Covid-19 is likely to remain a headwind to the recovery this year, with case numbers still elevated and the vaccination rollout off to a slow start, she added.