Oman’s forex reserves set to scale all-time high in 2022

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The Sultanate of Oman’s foreign exchanges reserves are projected to reach an all-time high of RO 23.3 billion at the end of 2022, besting its previous peak of $20.3 billion recorded in 2016, according to a new report by Fitch Solutions Group Ltd (FSG), an affiliate of Fitch Ratings Inc.

UK-based FSG cited an array of factors for its upbeat forecasts, including robust international oil prices, hydrocarbon output growth, rising non-oil exports and a revival of key service sectors.

“Oman’s current account surplus will help it to accumulate foreign currency reserves, which we expect will reach an all-time high by the end of 2022,” said Fitch Solutions Group in its latest commentary on the Omani economy.

“Foreign reserves fell by $5.3bn between 2016 and 2020 amid a significant drop in hydrocarbon prices, but regained the majority of these losses in 2021. We expect FX reserves will grow by 18.1 per cent to $23.3bn in 2022, exceed their all-time high of $20.3bn in 2016. Reserves will be equivalent to 8.8 months of imports, up from an 8.4-month cover in 2021, putting Oman in a suitable position to keep its peg given its favourable external position over the medium term,” it stated.

Other aspects of the Omani economy are also on a strong positive trajectory, according to Fitch Solutions Group.

The current account balance, for instance, is anticipated to post a surplus of 4.8 per cent of GDP in 2022, the first surplus in eight years, says the research agency. This is attributed primarily to the widening of the goods trade surplus from 21.4 per cent of GDP in 2021 to 30.2 per cent in 2022, fueled predominantly by an uptick in hydrocarbon export revenues.

“Our new forecast entails that Oman will post its first current account surplus since 2014, which will come as a significant improvement compared to the last 10-year average deficit of 5.8 per cent of GDP and the 2021 estimated deficit of 6.3 per cent of GDP. We revised up our 2022 forecast from 0.2 per cent of GDP deficit following the rally in commodity prices triggered by Russia’s war of Ukraine,” FSG noted in its report.

Furthermore, international oil prices currently at 7-year highs are expected to buoy hydrocarbon export revenues by 44.5 per cent to RO 14.4 billion in 2022, up from an estimated increase of 42.2 per cent in 2021, the report points out. This represents an upward revision from its previous forecast of 10.5 per cent (based on an average oil price of $72.0 per barrel) to an anticipated average of $100.0/barrel in 2022, it said.

“Increased output from the Mabrouk North East and Khazzan gas fields and easing of OPEC+ supply cuts will feed into higher exported volumes. Our Oil & Gas team projects Oman’s oil and gas exports will grow by 5.0 per cent and 4.0 per cent respectively in 2022,” the think-tank added.