Oman's economy is expected to grow faster this year and next as rising oil and gas production boosts exports while the government increases investments in the non-oil sector to diversify hydrocarbons revenue.
The Gulf nation's gross domestic product, adjusted for inflation, is set to accelerate to 2.8 per cent in 2018 and 3.5 per cent next year, from 0.4 per cent in 2017, according to a report released on Tuesday by BMI, a unit of Fitch Ratings.
"The rising price of oil will offer upsides to fiscal revenues, boosting government consumption," the report said. "Economic diversification efforts will continue apace and generate considerable investment in manufacturing, logistics and tourism."
Oman, the biggest Arab oil exporter that is not a member of Opec, has one of the weakest financial positions among the Gulf's nations. It planned to introduce a 5 per cent value-added tax at the beginning of this year, but delayed it over concerns about a negative impact on consumer spending. Oman also extended a six-month freeze on hiring foreign workers – in sectors including media, information technology, marketing, insurance and aviation – until the end of the year, to boost local employment.
In the second half of the year, Oman's crude output is expected to increase as part of an agreement in Vienna among Opec members last month to boost production. Together with a rise in natural gas production from Oman's Khazan field, oil and gas exports should increase net exports and boost real GDP, BMI said. A rise in the price of oil, which accounted for 55 per cent of state revenues in 2017, will also support government spending.
"Hydrocarbon gains – both in prices and production – will allow the government to return to expansionary fiscal policy in 2018 after three consecutive years of spending cuts, boosting government consumption," the report said.
Government investments in non-oil sectors will lead to an uptick in economic activity over the coming quarters.
Oman’s construction sector outperformed the region, with forecasts of real industry growth of 10.4 per cent in 2018 and 11.5 per cent in 2019. This is compared to the regional averages of 7.1 per cent and 7.3 per cent respectively, BMI says. The sultanate is also investing in projects in the budding shipping hubs in Sohar and Duqm.
The Oxford Economics and ICAEW's report on the Middle East economic outlook also echoed BMI views projecting Oman's GDP growth to reach 3.6 per cent this year and 2.8 per cent next year from 0.2 per cent a year ago.