- Economic activity continues to expand, while fiscal and external balances are set to remain in comfortable positions over the medium term supported by favorable oil prices and ongoing fiscal and structural reforms.
- The authorities continue making steadfast progress in implementing their structural reform agenda under Oman Vision 2040, which will accelerate diversification towards a greener, more inclusive, and knowledge-based economy.
- The banking sector remains resilient, underpinned by comfortable capital and liquidity ratios and strong asset quality.
Washington, DC: A staff team from the International Monetary Fund (IMF), led by Mr. Cesar Serra, visited Muscat, Oman, during April 30-May 8, 2024, to discuss economic and financial developments, the outlook, and the country's policy priorities. At the conclusion of the mission, Mr. Serra issued the following statement:
"Oman's economic activity continues to expand, while inflation is low. Notwithstanding OPEC+ oil production cuts, real GDP grew at 1.3 percent in 2023, driven by the expansion of nonhydrocarbon activities. Economic growth is expected to remain moderate at 0.9 percent in 2024, on the back of extended oil production cuts to the first half of this year before accelerating to 4.1 percent in 2025 supported by a rebound in hydrocarbon activity following the expected relaxation of OPEC+ quotas. Nonhydrocarbon growth is projected to increase to 2.6 percent in 2024 and 3.2 percent in 2025—from 2.1 percent in 2023—on continued reforms and investment projects. Average headline inflation decelerated further from 0.9 percent in 2023 to nil during January-March 2024 (year-over-year), reflecting continued easing of core, food, and transport inflation.
"Favorable oil prices and sustained reform efforts continue to shore up fiscal and external positions. The fiscal balance turned out at a surplus of 6.6 percent of GDP in 2023 and is forecast to remain in surplus over the medium term, supported by comfortable hydrocarbon receipts, increasing nonhydrocarbon revenues, and continued fiscal discipline. Central government debt as a share of GDP was reduced further to 36.5 percent in 2023 from 40.9 percent in 2022, as the government continued to use part of the fiscal surplus to prepay its debt (a net debt reduction of $6.1 billion). State-owned enterprises (SOEs) debt stabilized at around 31 percent of GDP and Oman Investment Authority's SOEs reform agenda proceeded as planned (9 divestments were completed in 2023 with proceeds amounting to about $3 billion). The current account balance recorded a surplus of 1.4 percent of GDP and is set to remain in surplus over the medium term. Despite public deleveraging, gross international reserves held by the Central Bank of Oman stood at $17.5 billion in 2023 (4.1 months of prospective goods and services imports), supported by a surge in Foreign Direct Investment.
"The banking sector remains resilient. Bank capital and liquidity ratios and profitability continue at comfortable levels amid strong asset quality. Banks' net foreign asset position turned positive in December 2023 for the first time since 2014 due to rising investments in foreign securities, while credit to the private sector continued to expand.
"The near- to medium-term outlook is favorable and risks to the outlook are broadly balanced. On the upside, growth and fiscal and external positions would be strengthened by a surge in oil prices, which could be driven by supply and demand imbalances, and accelerated reforms under Oman Vision 2040 and committed investments from regional partners. Downside risks to the outlook stem from further intensification of geo-political tensions in the region, an abrupt global slowdown, particularly in China, and higher-for-longer global interest rates.
"Implementation of structural reforms is underway, with the social protection and labor laws being rolled out, SOEs divestment, deleveraging, and other SOEs reforms progressing as planned, and climate-related investments on track to achieve renewable energy and green hydrogen targets over the medium term. Going forward, the authorities' priorities include enhancing tax administration, continuing rationalizing fiscal expenditures, strengthening the medium-term fiscal framework, modernizing the monetary policy toolkit, deepening financial markets and supporting small and medium enterprises funding, and accelerating digitalization. These reforms are aligned with Oman Vision 2040 to achieve a greener, more inclusive, and knowledge-based economy.
"The IMF staff team would like to thank the Omani authorities and other counterparts for the open and productive discussions and their warm hospitality."
