Oman’s economic growth is set to rebound in 2024, supported by higher hydrocarbon production and stronger non-hydrocarbon growth, after softening this year due to oil production cuts, the International Monetary Fund has said.
The sultanate’s economy surged 4.3 per cent last year, driven by the hydrocarbon sector, but dropped to 2.1 per cent year on year in the first half of 2023 due to Opec+-related oil production cuts,” the IMF said on Wednesday.
It is projected to slow down this year to 1.3 per cent, the IMF added.
However, non-hydrocarbon growth accelerated from 1.2 per cent in 2022 to 2.7 per cent in the January-June period of this year. It was supported by Oman’s recovering agricultural and construction activities and robust services sector.
“The economic outlook remains favourable … fiscal and current account balances are projected to remain in surplus over the medium term albeit trending down along with oil prices,” said Cesar Serra, who led the staff visit to Muscat.
However, the outlook is subject to high uncertainty, due to “oil price volatility, global economic and financial developments, and potential indirect spillovers from the ongoing conflict in Gaza”, Mr Serra added.
Brent, the global benchmark for two thirds of the world's oil, soared to a notch under $140 a barrel in March last year, the highest in 14 years, after Russia’s military offensive in Ukraine.
However, sluggish economic growth in China and the strong possibility of a recession in several economies weighed on the market and dragged prices lower.
Brent topped $95 a barrel in September as voluntary supply cuts by Opec+ members Saudi Arabia and Russia tightened the crude market.
But rising exports from sanctioned countries as well as concerns about the global economy have dragged crude prices lower in recent weeks.
Brent was trading 4.1 per cent down at $77.81 a barrel at 8.56pm UAE time on Thursday. While the West Texas Intermediate, the gauge that tracks US crude, was down 4.4 per cent at $73.26 a barrel.
As a result of reduced oil activities, Oman’s economy contracted by 9.5 per cent in the second quarter of 2023, Oman news agency reported in September, citing preliminary data issued by the National Centre for Statistics and Information.
The total gross domestic product for the three months to the end of June at current prices declined to about 10.1 billion Omani rials ($26.24 billion) compared to 11.1 billion rials during the same period last year.
The largest non-Opec producer in the Middle East, Oman expects a budget deficit of 1.3 billion rials this year, or 3 per cent of its economy, after achieving a surplus of 1.14 billion rials for 2022, the Ministry of Finance said in January.
The Gulf nation launched a three-year fiscal stability programme in October last year to add momentum to its economic recovery from the pandemic-driven slowdown and support the development of the country’s financial sector.
The IMF said Oman’s banking sector is resilient and accelerating financial sector development is key to expanding access to finance and supporting diversification efforts.
“Profitability has recovered to pre-pandemic levels, capital and liquidity ratios are well above regulatory requirements, and asset quality remains strong,” Mr Serra said.
The structural reform agenda under Oman’s Vision 2040 is also progressing, with many reforms under the implementation stage. It will further foster Oman's inclusive growth, enhance job creation and bolster resilience, the IMF said.
“The ongoing implementation of the new social protection law will strengthen the resilience of vulnerable groups and reinforce the sustainability of the unified pension fund.
“Enhancing non-hydrocarbon revenues – including through the planned tax administration reform and personal income tax on high-income earners – and further rationalising current expenditures, particularly from phasing out untargeted energy subsidies, remain a priority,” Mr Serra said.
