Oman economy poised for strong growth but challenges persist, IMF says

Surge in oil prices and accelerated reforms under Oman Vision 2040 are benefitting the economy

Skyline of courage yard, Muscat, Oman (Photo by: Bildagentur-online/UIG via Getty Images) *** Local Caption ***  bz21au-oman-construction.jpg
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Oman’s economy is expected to gain momentum, but the sultanate faces potential risks from regional geopolitical tensions, a sudden global economic downturn, and sustained high global interest rates, the International Monetary Fund has said.

Surge in oil prices, driven by supply and demand imbalances, and accelerated reforms under Oman Vision 2040, are expected to boost the economy, the Washington-based fund said on Monday, at the end of an official staff mission to the country.

The Gulf nation’s real gross domestic product, which grew 1.3 per cent last year, is expected to moderate at 0.9 per cent this year, on the back of extended oil production cuts to the first half of this year, before accelerating to 4.1 per cent in 2025, said Cesar Serra, who led the IMF staff visit to Oman.

“The near- to medium-term outlook is favourable and risks to the outlook are broadly balanced.”

The IMF team visited Muscat from April 30 to May 8 to discuss economic and financial developments, the outlook, and the country’s policy priorities.

Oman’s non-hydrocarbon growth is projected to increase to 2.6 per cent in 2024 and 3.2 per cent in 2025, from 2.1 per cent last year, on continued reforms and investment projects.

Production cuts by Opec and its allies are also supporting oil prices.

In March, Several members of the Opec+ group, including Saudi Arabia, the UAE and Kuwait, announced extensions to oil production cuts as part of efforts to support market balance and stability.

In total, Opec+ members are extending additional voluntary cuts of 2.2 million barrels a day to the end of the second quarter, the Opec secretariat said.

The move is in addition to the cuts announced in April last year, which have been extended until the end of December.

“Central government debt as a share of GDP was reduced further to 36.5 per cent in 2023 from 40.9 per cent in 2022, as the government continued to use part of the fiscal surplus to prepay its debt [a net debt reduction of $6.1 billion],” Mr Serra said.

State-owned enterprises' (SOEs) debt stabilised at around 31 per cent of GDP and the SOEs reform agenda by the Oman Investment Authority proceeded as planned, completing nine divestments in 2023 with proceeds amounting to about $3 billion.

In January, Oman Investment Authority also launched a 2 billion Omani rial ($5.2 billion) fund to encourage investments in the private sector and in small and medium-size enterprises.

The largest non-Opec producer in the Middle East, Oman’s average headline inflation dropped from 0.9 per cent in 2023 to zero during January-March period this year, reflecting “continued easing of core, food, and transport inflation”, Mr Serra said.

Country’s banking sector also remained resilient, IMF said.

The banking sector's capital and liquidity ratios and profitability continue at “comfortable levels amid strong asset quality”.

“Banks’ net foreign asset position turned positive last December for the first time since 2014 due to rising investments in foreign securities, while credit to the private sector continued to expand,” Mr Serra said.

IMF noted that Oman is making progress in implementing structural reform agenda under Oman Vision 2040, which aims to accelerate diversification towards a greener, more inclusive, and knowledge-based economy.

Updated: May 13, 2024, 5:18 PM