The International Monetary Fund forecast that Oman’s non-oil gross domestic product will grow by 1.5 per cent this year and could improve to 4 per cent by 2026 if fiscal measures are successfully carried out.
The sultanate introduced a Medium-Term Fiscal Adjustment Plan that aims to boost non-oil revenue and various other public sector reforms to fuel economic growth, the lender said at the end of its online mission to the Gulf country from January 17 to 31.
“Steady implementation of fiscal adjustment plans would strengthen fiscal and external balances substantially over the medium term,” the IMF said.
However, medium-term fiscal consolidation would weigh on growth, it said.
The twin shocks of the coronavirus pandemic and slump in oil prices took a toll on Oman’s economy last year.
Overall GDP shrunk by 6.4 per cent after non-hydrocarbon GDP contracted by about 10 per cent while a smaller decline in hydrocarbon GDP was recorded, the Washington-based lender said.
The country’s current account deficit is estimated to have widened from 5.4 per cent of GDP in 2019 to 10 per cent in 2020, mostly because of lower hydrocarbon exports, according to the IMF.
International reserves declined to about $15 billion or worth six and a half months of imports.
Overall, the fiscal deficit rose by 10.6 percentage points to 17.3 per cent of GDP and was financed by external bond issuance, privatisation proceeds and a drawdown of deposits and sovereign funds.
As a result, central government debt rose to 81 per cent of GDP, from 60 per cent in 2019, the IMF said.
The sultanate has adopted various fiscal measures over the past year to support the economy, including interest-free emergency loans, tax and fee reductions and waivers, the flexibility to pay taxes in instalments and the establishment of the Job Security Fund to support citizens who lost their jobs.
In addition, the Oman Central Bank eased financial conditions through lower interest rates and liquidity injections, deferred loan instalment payments and relaxed requirements on capital buffers and liquidity ratios.
The fiscal adjustment plan, or Tawazun, is designed to eliminate the fiscal deficit between 2021 and 2025 by boosting non-oil revenue and keeping nominal fiscal expenditures broadly constant.
The government also established the Oman Investment Authority to strengthen the management and efficiency of public enterprises.
It formed a new holding company, Energy Development of Oman, to manage and finance government investments in oil, gas and renewables.
Some of the key measures to increase government revenue include the introduction of VAT next year, the introduction of a personal income tax on high-income earners and the expansion of the excise tax base in 2020.
Oman is expected to generate 300 million Omani rials ($779m) in revenue through VAT this year, the country's finance minister Sultan Al Habsi said last month.
The financial boost of measures taken under the 2021 budget plan will be about 3.5bn rials. This includes VAT revenue, the broadening of excise taxes and measures to improve tax collection.
Meanwhile, important measures to contain expenditure include the reduction of the wage bill through civil service reforms and ensuring energy subsidies benefit the most vulnerable groups, among others.
The IMF said that upside support to the Oman economy could come from a stronger rebound in global activity and a confidence boost from successful fiscal adjustment measures and plans to strengthen public enterprise governance.
However, downside risks include the emergence of Covid-19 strains and volatility in oil prices, which could weigh on the outlook and macroeconomic balances.
“Withdrawal of the various types of fiscal, monetary and financial sector support measures should be carefully co-ordinated and calibrated to continue to support hard-hit but viable sectors, while gradually reducing support for those that no longer need it,” the lender said.