IMF urges Oman to boost non-oil revenue for growth

Fund projects sultanate's growth to remain at 1.2% this year, slowed by extended oil production curbs by Opec+

Mutrah Souq, a traditional market in Muscat, Oman. Victor Besa / The National

Oman’s economy continues to expand, but the Gulf nation must advance its efforts to raise non-hydrocarbon revenue to ensure sustainable growth, the International Monetary Fund has said.

Economic growth in Oman expanded to 1.9 per cent on an annual basis in the first half of 2024, from 1.2 per cent last year, the Washington-based fund said on Monday at the end of an official staff mission to the country.

While growth is projected to remain at 1.2 per cent this year, slowed by extended oil production curbs by the Opec+ bloc, it is expected to rebound next year. The growth will be supported by higher hydrocarbon production and acceleration of non-hydrocarbon growth, the IMF said.

Raising non-hydrocarbon revenue remains a key priority, with a focus on implementing tax administration reforms and tax policy measures, said Cesar Serra, who led the IMF staff visit to Oman. Phasing out untargeted subsidies is essential to free up resources for growth-enhancing investments that support Oman’s diversification agenda, Mr Serra said.

However, the IMF noted that the economic outlook for Oman is uncertain and faces significant risks from factors such as “oil price volatility, risks of a global economic slowdown and intensifying geopolitical tensions”.

Oman's economic trajectory is closely tied to global oil dynamics, with Opec+ cuts and shifting demand forecasts influencing the country's hydrocarbon revenue and overall growth outlook. This month, eight Opec+ member countries agreed to extend voluntary production adjustments of 2.2 million barrels per day for a month until the end of December.

Last week, Opec revised down its forecast for oil demand growth this year based on data from China, India and other regions, while also lowering its estimate for 2025, marking the producer group’s fourth consecutive downwards adjustment.

Global oil demand growth forecast for 2024 has been reduced by 107,000 barrels per day, now projected to increase by 1.8 million bpd compared to the previous year, Opec said.

Oman’s non-hydrocarbon sector, which grew by 1.8 per cent last year, jumped 3.8 per cent during the January-June period on the back of expansions in construction, manufacturing and services, the IMF said. The sultanate’s inflation slowed to 0.6 per cent during January-September period this year from 0.9 per cent in 2023.

“Fiscal and current account balances remained in comfortable surpluses, while public-sector debt declined further in 2023. Oman's sovereign credit rating has been upgraded recently to investment grade, reflecting the marked improvement in its fundamentals,” Mr Serra said.

The IMF team visited Muscat from October 30 to November 13 to discuss economic and financial developments, the outlook and the country’s policy priorities.

The fund said initiatives to improve the business environment, attract large-scale investments, and empower small and medium-sized enterprises are under way, while state-owned enterprise reforms under Oman Investment Authority are advancing.

“Efforts are ongoing to scale up renewable energy production to reduce electricity generation costs and support the green-hydrogen economy prospects. The digital transformation agenda is progressing,” Mr Serra said.

Oman launched its sustainable finance framework this year as it looks to support the economy by reducing reliance on fossil fuels and attracting foreign investment.

Last month, Mahmood Al Aweini, Oman's Secretary General of the Ministry of Finance, said Muscat can become a leading player in sustainable and green financing in the Gulf, as the country continues to make reforms as part of its Vision 2040 agenda.

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 SMEs. Oman also launched a three-year fiscal stability programme in October 2022 to add momentum to its economic recovery from the pandemic-driven slowdown and support the development of the country’s financial sector.

Mr Serra said Omani banking sector remains sound and profitability has recovered to pre-pandemic levels with ample capital and liquidity buffers.

“Further developing financial markets, expanding institutional investor base, and leveraging digitalisation will enhance access to finance and support diversification efforts,” he said.