Oman economy to rebound in 2024, says IMF report

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Oman’s economic recovery continues supported by favourable oil prices and sustained reform momentum and growth is expected to rebound next year, says an IMF mission satatement.

The economy grew by 4.3 percent in 2022, primarily driven by the hydrocarbon sector, before slowing down to 2.1 percent (year on year) in the first half of 2023 on the back of Opec+ related oil production cuts. Non-hydrocarbon growth accelerated from 1.2 percent in 2022 to 2.7 percent in the first half of 2023, supported by recovering agricultural and construction activities and robust services sector, said Cesar Serra, who headed the IMF team.

The statement follows the team's discussions with Omani officials in Muscat during November 1-15.

Inflation has receded from 2.8 percent in 2022 to 1.2 percent during January-September 2023. Prudent fiscal management and high oil prices helped turn fiscal and current account balances into surpluses in 2022. Public sector debt was reduced markedly. Oman's sovereign credit rating has been upgraded to one notch below investment grade and sovereign spreads have become nearly at par with the average of Gulf Cooperation Council countries and well below that of emerging markets, it said.

“The economic outlook remains favourable. While growth is projected to slow down this year to 1.3 percent due to Opec+-related oil production cuts, it is set to rebound starting in 2024, supported by higher hydrocarbon production and stronger non-hydrocarbon growth. Fiscal and current account balances are projected to remain in surplus over the medium term albeit trending down along with oil prices. Nevertheless, the outlook is subject to high uncertainty, including from oil price volatility, global economic and financial developments, and potential indirect spillovers from the ongoing conflict in Gaza,” the statement said.

“The authorities remain committed to fiscal discipline while strengthening the social safety net. The non-hydrocarbon primary deficit is set to decline by 3.4 percent of non-hydrocarbon GDP in 2023 relative to 2022. 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. Sustaining the momentum of fiscal reforms remains, however, key to entrenching fiscal sustainability and ensuring intergenerational equity.

“Enhancing non-hydrocarbon revenues—including through the planned tax administration reform and personal income tax on high-income earners—and further rationalizing current expenditures, particularly from phasing out untargeted energy subsidies, remain a priority. Institutionalizing a medium-term fiscal framework, building on the significant progress made under the Medium-Term Fiscal Plan, will help cement fiscal discipline and credibility,” it said.

“The exchange rate peg remains a credible monetary anchor for Oman. The ongoing implementation of the CBO’s Monetary Policy Enhancement Project will further strengthen the monetary policy toolkit. The banking sector continues to show resilience. Profitability has recovered to pre-pandemic levels, capital and liquidity ratios are well above regulatory requirements, and asset quality remains strong. Expediting the implementation of the authorities’ financial development agenda will be key to improve financing opportunities and support economic diversification efforts.”

“Sustained efforts to implement Vision 2040 are progressing. The new labour law is set to improve working conditions and the flexibility of the labor market as well as enhance female labor force participation. Efforts to create a more enabling business environment are ongoing, including from the reform of state-owned enterprises under Oman Investment Authority. The climate agenda is progressing through ample investments in renewable energy and hydrogen, guided by the authorities’ National Strategy for an Orderly Transition to Net Zero,” the statement said.