## Constraints on Development of NBFIs in Oman

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### Context and key challenges
- Deeper capital markets and a more diversified investor base can improve risk sharing and the efficiency with which capital is allocated to the real economy, boosting economic growth and welfare.
- Capital markets in Oman remain relatively small and illiquid compared to other GCC countries.
- The domestic bond market is small, with activity heavily concentrated in the primary market; issuance is sporadic and focuses on short-term maturities.
- The secondary market for government securities is almost entirely inactive due to low market liquidity and no market-making system.
- Non-resident participation remains low due to illiquidity and regulatory frictions such as absence of over-the-counter (OTC) trading and lack of a link with Euroclear.
- Stock market capitalization in Oman persists at low levels due to factors such as the large share of state-owned enterprises (SOEs) and limited growth in the number of listed firms, despite recent progress with IPOs.

### Recent capital markets initiatives and market infrastructure
- Money market reinvigoration:
  - Central Bank of Oman (CBO) is looking to reintroduce short-term certificates of deposit to improve liquidity management and strengthen liquidity forecasting.
  - Developing a primary dealer system to improve price discovery and enhance market communication through a more regular auction schedule.
  - Public Debt Law provisions now address governance arrangements, investor relations, liquidity management operations, and Medium-Term Debt Management Strategy preparation.
- Islamic finance:
  - Sukuk outstanding reached about $8 billion as of year-end 2023 (67 percent sovereign, 33 percent corporates).
  - Resolution No. Kh/21/2024 titled ‘The Regulation Governing Bonds and Sukuk’ was published on 21 March 2024 by Oman’s Financial Services Authority (FSA).
  - FSA’s new Sukuk and Bond Regulation requires issuers to submit a report every year proving the compatibility of the sukuk with the provisions of Islamic sharia, starting from the sukuk issuance date.
  - CBO is developing Sharia-compliant liquidity tools, including Islamic certificates of deposit and treasury bills.
- Equity market deepening:
  - FSA announced the Capital Markets Incentives Program (CMIP) to attract private companies to list on the Muscat Stock Exchange (MSX).
  - CMIP offers two main listing pathways: (i) conversion/listing of large private and family-owned companies on the main MSX market and (ii) listing of startup companies and SMEs on the Promising Companies Market (MSX-AIM).
  - Incentives include tax refunds and waivers, fee exemptions, preferred pricing and fast-tracked financing on certain projects for up to three to five years.
  - Authorized market reforms to support liquidity include broader market makers, introduction of short selling, margin financing, and securities lending and borrowing.
- Market access and SOE reforms:
  - Initiative underway to link the Muscat Clearing and Depository Company with Euroclear Bank (Phase 1 already operational for Omani investor access to international securities).
  - Ongoing SOE reform and privatization/divestment: Oman Investment Authority (OIA) was set to list three state-owned assets in 2024; OQEP issued Oman’s largest IPO ever, raising $2 billion in October; two successful IPOs in 2023 raised about $1 billion.

### Investor base structure and statistics (year-end 2023)
- Investor concentration in government debt:
  - Banks held 57 percent of the outstanding stock of government debt securities.
  - Pension funds held 35 percent.
  - Retail investors held 0.3 percent of the outstanding stock of government debt securities.
- Insurance and investment funds:
  - Investment funds are mostly oriented toward equities and outward investment and remain small with assets under management of about 1 percent of GDP.
  - Table-reported figures: Mutual Funds assets under management 221,505.54 (USD million); Insurance Companies assets under management 173,214.08 (USD million).
- Foreign investor participation:
  - MSX foreign shareholding rate reached just over 20 percent at the end of 2023.
  - Foreign investors can participate directly or through investment funds with no restrictions or limits, but accessing the secondary debt market requires a local custodian; international investors are discouraged by the need to route transactions through a broker and accept counterparty credit risk.

### Market behavior, liquidity implications, and preconditions for secondary markets
- Systemic excess liquidity and underdeveloped debt markets have fostered a hold-to-maturity culture among investors.
- Preconditions for liquid secondary markets are not met:
  - (i) active money market including interbank repo market;
  - (ii) predictable and transparent issuance of benchmark securities across tenors at market clearing prices;
  - (iii) sufficient number of intermediaries trading non-negligible amounts with standard pricing.
- Bonds are held in hold-to-maturity portfolios at amortized cost rather than trading books at fair value, complicated by lack of a reliable yield curve of secondary market prices/yields.
- Absence of developed debt markets leads fixed income-focused institutional investors to hold more foreign assets, reducing their contribution to local market development.

### Constraints from concentrated ownership, pensions, and insurance
- Concentrated equity ownership by SOEs and large holdings by pension funds limit free float and trading liquidity.
- Pension fund structure and mandates:
  - Pension funds are directed to hold at least 30 percent of their portfolio in local government securities.
  - Pension funds have an upper bound of 10 percent of their portfolio for their holdings of assets with more than 10-year maturity.
  - Implication: the 10 percent cap on >10-year maturity holdings will constrain demand for longer-term bonds and slow development of a benchmark yield curve.
- Asset management:
  - Assets under management at about 1 percent of GDP in 2023.
  - Mutual funds account for most of the investment managers.
- Insurance market composition and penetration:
  - Total insurance sector premiums account for just over 1 percent of GDP.
  - GCC average insurance premiums are about 1.5 percent of GDP as of 2022.
  - Distribution of Oman Insurance Sector Premiums (2022): Transport 2%; Property 17%; Motor 20%; Health 35%; Life 12%; Engineering 5%; Liability 3%; Other 6%.
  - Low penetration of life insurance reflects lack of awareness, incentives, and access for non-Omani residents, and the solid social safety net for Omani citizens.
  - There are no tax incentives to use insurance-based savings products.

### Policy levers and recommended actions
- Establish a functioning money and local currency bond market as a critical first step in capital markets development.
- Market infrastructure and issuance strategy:
  - Reintroduce short-term certificates of deposit and develop primary dealer systems to improve price discovery and liquidity.
  - Enhance transparency, liquidity, and regularity of issuance (including development of benchmark tenors and predictable auction schedules) to support secondary market activity.
  - Adopt standards of the General Master Repurchase Agreement and foster repo market activity in private markets rather than repos intermediated by the central bank.
- Islamic finance:
  - Improve predictability of sukuk auctions and establish Islamic financial institutions or asset managers specializing in sukuk as market makers.
  - Develop Sharia-compliant liquidity tools (Islamic certificates of deposit and treasury bills).
- Market access and foreign participation:
  - Ensure a link between Muscat Clearing Depository (MCD) and Euroclear and remove counterparty risks with brokers in the secondary market to attract more foreign investors to the local bond market.
  - Regulatory guardrails as markets develop: (1) appropriately resourced and intensive supervisory oversight; (2) incentivizing stronger risk management as NBFI participation increases; (3) closing data gaps to facilitate timely risk assessment by market participants and supervisors.
- Spurring institutional investor demand:
  - Encourage growth of life insurance companies and reduce information asymmetries to spur demand for longer-term bonds.
  - Consider temporary and targeted tax incentives (examples cited in the text include Chile, India, Morocco, Nigeria) to stimulate pension and life insurance savings, while being cautious about fiscal costs and policy uncertainty.
  - Expand fixed-income investment funds and run financial literacy programs on equity-based mutual funds to attract retail investors and induce trading activity.
- Listing and SME market development:
  - Use CMIP, but complement tax incentives with measures such as reduced listing and IPO preparation fees, training for reporting capacity, lowering the requirement for total number of public shareholders, intraday price change limits, and improving transparency through an independent research provider.
  - Improve information disclosure on MSX-AIM and leverage Mala’a credit bureau to reduce information asymmetry and support SME financing.

### Risks and cautions highlighted
- Overly generous tax incentives may attract ill-prepared companies and provoke controversy over fiscal cost and policy uncertainty (example: Jamaica’s experience).
- Pension fund consolidation should avoid overly tight portfolio restrictions that could reduce domestic market participation (example: Kazakhstan’s 2013 nationalization and consolidation).
- Foreign investor inflows can aid market development but may amplify local market volatility; the FSA should monitor emerging risks and weigh trade-offs.

*Source: 1omnea2025002-print-pdf - "Constraints on Development of NBFIs in Oman", IMF*

### 1. Constraints on Development of NBFIs in Oman _____________________________________ 9

### Constraints on Development of NBFIs in Oman

### Context and key challenges
- Deeper capital markets and a more diversified investor base can improve risk sharing and the efficiency with which capital is allocated to the real economy, boosting economic growth and welfare.
- Capital markets in Oman remain relatively small and illiquid compared to other GCC countries.
- The domestic bond market is small, with activity heavily concentrated in the primary market; issuance is sporadic and focuses on short-term maturities.
- The secondary market for government securities is almost entirely inactive due to low market liquidity and no market-making system.
- Non-resident participation remains low due to illiquidity and regulatory frictions such as absence of over-the-counter (OTC) trading and lack of a link with Euroclear.
- Stock market capitalization in Oman persists at low levels due to factors such as the large share of state-owned enterprises (SOEs) and limited growth in the number of listed firms, despite recent progress with IPOs.

### Recent capital markets initiatives
- Money market reinvigoration:
  - Central Bank of Oman (CBO) is looking to reintroduce short-term certificates of deposit to improve liquidity management and strengthen liquidity forecasting.
  - Developing a primary dealer system to improve price discovery and enhance market communication through a more regular auction schedule.
  - Public Debt Law provisions now address governance arrangements, investor relations, liquidity management operations, and Medium-Term Debt Management Strategy preparation.
- Islamic finance:
  - Sukuk outstanding reached about $8 billion as of year-end 2023 (67 percent sovereign, 33 percent corporates).
  - Resolution No. Kh/21/2024 titled ‘The Regulation Governing Bonds and Sukuk’ was published on 21 March 2024 by Oman’s Financial Services Authority (FSA).
  - FSA’s new Sukuk and Bond Regulation requires issuers to submit a report every year proving the compatibility of the sukuk with the provisions of Islamic sharia, starting from the sukuk issuance date.
  - CBO is developing Sharia-compliant liquidity tools, including Islamic certificates of deposit and treasury bills.
- Equity market deepening:
  - FSA announced the Capital Markets Incentives Program (CMIP) to attract private companies to list on the Muscat Stock Exchange (MSX).
  - CMIP offers two main listing pathways: (i) conversion/listing of large private and family-owned companies on the main MSX market and (ii) listing of startup companies and SMEs on the Promising Companies Market (MSX-AIM).
  - Incentives include tax refunds and waivers, fee exemptions, preferred pricing and fast-tracked financing on certain projects for up to three to five years.
  - Authorized market reforms to support liquidity include broader market makers, introduction of short selling, margin financing, and securities lending and borrowing.
- Market access and SOE reforms:
  - Initiative underway to link the Muscat Clearing and Depository Company with Euroclear Bank (Phase 1 already operational for Omani investor access to international securities).
  - Ongoing SOE reform and privatization/divestment: Oman Investment Authority (OIA) was set to list three state-owned assets in 2024; OQEP issued Oman’s largest IPO ever, raising $2 billion in October; two successful IPOs in 2023 raised about $1 billion.

### Nascent non-bank institutional investor base: structure and statistics
- Investor concentration in government debt (year-end 2023):
  - Banks held 57 percent of the outstanding stock of government debt securities.
  - Pension funds held 35 percent.
  - Retail investors held 0.3 percent of the outstanding stock of government debt securities.
- Insurance and investment funds:
  - The insurance sector balance sheet is small because the life insurance industry plays a minimal role relative to non-life.
  - Investment funds are mostly oriented toward equities and outward investment and remain small with assets under management of about 1 percent of GDP.
  - Table figures (as reported): Mutual Funds assets under management 221,505.54 (USD million); Insurance Companies assets under management 173,214.08 (USD million).
- Foreign investor participation:
  - MSX foreign shareholding rate reached just over 20 percent at the end of 2023.
  - Foreign investors can participate directly or through investment funds with no restrictions or limits, but accessing the secondary debt market requires a local custodian; international investors are discouraged by the need to route transactions through a broker and accept counterparty credit risk.
- Market behavior and liquidity implications:
  - Systemic excess liquidity and underdeveloped debt markets have fostered a hold-to-maturity culture among investors.
  - Preconditions for liquid secondary markets are not met: (i) active money market including interbank repo market; (ii) predictable and transparent issuance of benchmark securities across tenors at market clearing prices; (iii) sufficient number of intermediaries trading non-negligible amounts with standard pricing.
  - Bonds are held in hold-to-maturity portfolios at amortized cost rather than trading books at fair value, complicated by lack of a reliable yield curve of secondary market prices/yields.
  - Absence of developed debt markets leads fixed income-focused institutional investors to hold more foreign assets, reducing their contribution to local market development.

### Policy levers and areas for further action (as described in the chapter)
- Establishing a functioning money and local currency bond market is a critical first step in capital markets development.
- Policy tools beyond tax incentives can support participation in local markets (examples described in the text include market-making arrangements, primary dealer systems, and market infrastructure links such as Euroclear).
- Encouraging the growth of life insurance companies and reducing information asymmetries would help spur demand from a broader set of institutional investors.
- Enhancing transparency, liquidity, and regularity of issuance (including development of benchmark tenors and predictable auction schedules) to support secondary market activity.
- Strengthening financial market infrastructure and legal/regulatory frameworks to align debt securities framework with international market standards.

*Source: 1omnea2025002-print-pdf - "Constraints on Development of NBFIs in Oman", IMF, https://www.imf.org/-/media/files/publications/cr/2025/english/1omnea2025002-print-pdf.pdf*

### 10.      Further development of the NBFI sector is constrained by concentrated ownership of

### 10.      Further development of the NBFI sector is constrained by concentrated ownership of equities and limited financial literacy

### Constraints on NBFIs and current structure
- Local equity markets and nonbank financial services develop in a self-reinforcing manner, but the public sector’s ownership of a large share of equities in Oman and limited trading have constrained stock market liquidity.
- Limited financial literacy and generous pension benefits lower demand for asset management services and insurance products.

### Box 1 — Pension funds and asset-liability constraints
- Pension fund reform is underway to consolidate the 11 public and private sector pension funds into one, creating a unified pension system for all workers across all economic sectors and aiming to improve long-term sustainability and efficiency in asset management.
- Current mandates:
  - Pension funds are directed to hold at least 30 percent of their portfolio in local government securities.
  - Pension funds have an upper bound of 10 percent of their portfolio for their holdings of assets with more than 10-year maturity.
- Implication: the 10 percent cap on >10-year maturity holdings will constrain demand for longer-term bonds and slow development of a benchmark yield curve.

### Box 1 — Asset management and equity market liquidity
- Asset management size and composition:
  - Assets under management at about 1 percent of GDP in 2023.
  - Mutual funds account for most of the investment managers.
- Market structure and impediments:
  - Concentrated ownership of (large) equities by pension funds and other government entities limits free float, trading, and liquidity.
  - Underdeveloped fixed income markets narrow the scope for asset managers to grow.
  - Retail demand may be low partly because retail investors are unaware of the benefits of investing through mutual funds.

### Box 1 — Insurance penetration and insurance market composition
- Demand patterns:
  - Beyond short-term property, automobile, and health insurance, demand for insurance products is low.
  - Total insurance sector premiums account for just over 1 percent of GDP.
  - GCC average insurance premiums are about 1.5 percent of GDP as of 2022.
  - Low penetration of life insurance reflects lack of awareness, incentives, and access for non-Omani residents, and the solid social safety net for Omani citizens.
  - There are no tax incentives to use insurance-based savings products.
- Distribution of Oman Insurance Sector Premiums (2022):
  - Transport: 2%
  - Property: 17%
  - Motor: 20%
  - Health: 35%
  - Life: 12%
  - Engineering: 5%
  - Liability: 3%
  - Other: 6%

### Box 1 — Finance companies
- Structure and constraints:
  - Oman has five finance and leasing companies with loans concentrated mainly in real estate, SMEs, and personal loans.
  - Regulatory framework appears sufficient.
  - Main challenges: lack of public awareness and high cost of funding.
  - Funding sources are mainly debt and paid-up capital, placing them at a disadvantage relative to banks with access to relatively less expensive demand deposits.

### Supporting securities issuance and international best practices (paragraphs 11–15)
- Importance of local currency bond market:
  - Further development of the local currency bond market remains a critical first step in successful capital markets development.
  - Money- and repo-market development were steps taken in other countries (for example, Hungary, Malaysia, Mexico, Thailand) to initiate more secondary market trading in government securities.
  - Specific policies: adopt standards of the General Master Repurchase Agreement and foster repo market activity in private markets rather than repos intermediated by the central bank.
- Improving government debt issuance strategy to increase transparency and secondary market liquidity:
  - Key problems observed in similar contexts: fragmented issuance, limited predictability in the primary market (auction calendar), and restricted capacity of primary dealers for market making.
  - Example outcome: measures to improve predictability and reopen benchmark bonds tripled secondary market trading activity over 2 years in a cited Latin American case.
- Islamic finance and sukuk market challenges:
  - Oman’s Islamic finance market is the smallest in the GCC.
  - Sukuk market faces illiquid secondary markets; many Islamic banks and institutions participate in primary issuances but hold sukuk to maturity rather than trade in secondary market.
  - Contributing factors: infrequent sukuk issuance, scarcity leading holders to avoid selling, and lack of market makers in the secondary market.
  - Recommended actions: improve predictability of sukuk auctions and establish Islamic financial institutions or asset managers specializing in sukuk as market makers.
- Listing incentives and CMIP:
  - Oman’s CMIP offers corporate tax incentives to larger companies listing on the main MSX and to SMEs listing on the MSX-AIM exchange.
  - Cautionary note: tax incentives to issuers are generally less common across jurisdictions; overly generous tax breaks can attract ill-prepared companies and provoke controversy over fiscal cost and policy uncertainty.
  - Example: Jamaica initially offered a five-year total corporate tax holiday followed by five years of halved corporate taxes, later reduced due to fiscal pressures and political pushback.
- Complementary policy tools to increase listings:
  - Other incentives used internationally include reduced listing and IPO preparation fees, training for internal capacity on reporting, lowering the requirement for total number of public shareholders, intraday price change limits, and improving transparency through an independent research provider.

### Spurring institutional investor demand and international best practices (paragraphs 16–19)
- Role of institutional investors:
  - Presence of institutional investors with differing portfolio objectives would make local capital markets more dynamic.
  - Authorities should support development of life insurance products to increase demand for longer-term bonds.
- Policy tools to spur demand for insurance and longer-term savings:
  - Enhance financial literacy and risk awareness frameworks.
  - Consider temporary and targeted tax incentives (examples cited: Chile, India, Morocco, Nigeria used tax deductions and VAT exemptions to stimulate pension and life insurance savings).
- Developing investment-fund segment and foreign investor access:
  - Expand fixed-income investment funds and run financial literacy programs on equity-based mutual funds to attract retail investors and induce trading activity (Malaysia example).
  - Potential joint effort between CBO, MoF, FSA, and the investment fund industry (for example, through the Omani Securities Association).
  - Ensure a link between Muscat Clearing Depository (MCD) and Euroclear and remove counterparty risks with brokers in the secondary market to attract more foreign investors to the local bond market.
  - Foreign investors can aid development of hedging markets but may amplify local market volatility; the FSA should monitor emerging risks and weigh trade-offs.
- Pension fund consolidation risks:
  - Reforms to consolidate pension funds should avoid slowing capital market development.
  - Kazakhstan’s 2013 nationalization and consolidation example: tight portfolio restrictions led to over-concentration and reduced capital market benefits; consolidation prompted major institutional investors to exit domestic capital markets, causing stagnant and non-liquid markets.
  - Oman’s pension funds have portfolio allocation restrictions (see Box 1); alleviating these restrictions would assist in developing longer-dated benchmark yields and growing local equity markets.
- Measures to broaden investor base and strengthen secondary market activity:
  - Listing several SOEs could increase equity market size, but increased secondary market activity is needed to attract a broader investor base.
  - Inclusion criteria for widely used emerging market equity indices can attract greater non-resident participation (examples: Colombia, Kuwait, Mexico, Qatar, Saudi Arabia, United Arab Emirates).
  - Oman has fully open primary and secondary markets for foreign investors.
  - Regulatory guardrails needed as markets develop:
    - (1) appropriately resourced and intensive supervisory oversight;
    - (2) incentivizing stronger risk management as NBFI participation increases;
    - (3) closing data gaps to facilitate timely risk assessment by market participants and supervisors.
- Reducing information asymmetry for SME market (MSX-AIM):
  - Tax incentives help but institutional investors identify liquidity and transparency as critical to investing in SMEs.
  - Improving information disclosure reduces information asymmetry and supports SME exchange success (example: Poland’s NewConnect used nominated authorized advisors to vet listing readiness).
  - Oman’s comprehensive credit bureau (Mala’a) would help address information asymmetry in SME financing and could be used by capital markets to assess creditworthiness.

*Source: IMF staff analysis as presented in the cited chapter.*

### 1. The Omani economy needs to

### 1. The Omani economy needs to 

### Job needs and demographics
- Approximately 550 thousand Omanis will enter the working age population by 2032.
- Taking into account the prevailing participation rate (67 percent) and the replacement of retirees (approximately 10 thousand annually), around 220 thousand new jobs will need to be created by 2032.
- Historical reference: 103 thousand newly created jobs for Omanis during 2012-2019.
- Public sector employment is no longer a feasible sole absorber of job seekers under current efforts to entrench medium-term fiscal sustainability while reducing reliance on hydrocarbon revenues.

### Private sector reliance on expatriate labor and effects on wages
- Expatriate workers make up 68 percent of Oman's overall employed labor force, and 86 percent of private sector jobs.
- Low-cost, low-skilled expatriate labor from South Asia, combined with flexible contractual terms, enabled nonhydrocarbon expansion while complying with quota (Omanization rates) requirements.
- The low labor costs associated with expatriate contracts have increased competitiveness of nonhydrocarbon sectors and boosted profit margins by driving wages downward, particularly in labor intensive sectors.
- Staff estimates: Omani wages in the private sector are, on average, around twofold higher than those of expatriate workers occupying similar roles.
- The wage disparity is more pronounced in jobs requiring low to medium levels of skill.
- The large supply of expatriate labor exerts downward pressure on private sector salaries, reducing substitutability between Omani and expatriate workers at current wages, especially in lower-skilled jobs.

### Labor market structure, segmentation, and mobility bottlenecks
- 56 percent of the Omani workforce finds employment within the private sector.
- Sectoral employment patterns:
  - Omani workers exceed 70 percent of total workers in sectors primarily dominated by state-owned enterprises (SOEs), including electricity and mining.
  - Omani workers constituted less than 15 percent of the workforce in sectors such as tourism, construction, and real estate.
  - Private-sector employment for Omanis is diversified with significant participation in construction, agriculture, and manufacturing.
  - Expatriate workers primarily find employment in construction, domestic labor, and trade.
- Limited mobility: until recently, expatriates were required to remain with their initial employer for 12 months before qualifying for an unconditional job transfer, which reduced bargaining power and depressed wages; limited mobility also disincentivized skill upgrading among expatriates, contributing to stagnation in productivity growth in nonhydrocarbon sectors.

### Education, skills mismatch, and female labor force participation
- Oman’s education outcomes and educational attainment:
  - Human capital and educational attainment in Oman are below other GCC countries and below emerging markets and advanced economies.
  - Lower average scores on the TIMSS mathematics scale compared to peers.
  - Educational choices skewed toward humanities and business administration rather than science, engineering, and technology.
  - Enrollment in vocational education represents less than 2 percent of enrollment in higher education.
- Skills mismatch: These factors contribute to a discrepancy between private sector skill demands and labor market supply, especially for medium- to high-skill jobs.
- Female labor force participation:
  - Overall female labor market participation rate stands around 32 percent in Oman in 2023, compared with 89 percent for men.
  - Omani women perform better than men in educational attainment and test scores but hold far fewer senior and managerial roles.
  - Government has introduced social protection and labor market reforms aimed at encouraging greater participation of women.

### Recent labor market trends (pre- and post-pandemic)
- Pre-pandemic (2013-2019):
  - Employment grew more than twice as fast for Omanis than for expatriates.
  - Employment growth for Omanis: private sector growth 44 percent vs public sector 12 percent between 2013 and 2019; over 80 percent of jobs created for Omanis were in the private sector.
  - Employment for Omani women was 38 percent higher in 2019 compared to 2013; for men employment grew by 24 percent.
  - Out of the 43 thousand newly created jobs for Omani women between 2013 and 2019, only around one quarter were in the public sector. For men, only one fifth of the 60 thousand newly created jobs were in the public sector.
  - Share of Omani women working in the private sector rose from 33 percent in 2013 to 45 percent in 2019; men’s share rose from 57 percent in 2013 to 62 percent in 2019.
- Post-pandemic (2020-2023):
  - Employment grew more than twice as fast for expatriates than for nationals.
  - Among Omanis, private sector employment grew 18 percent vs public sector 8 percent between 2020 and 2023.
  - Employment growth for Omani women reached 23 percent between 2020 and 2023, twice as high as for men (10 percent).
- Sectoral composition of jobs created for Omanis over the last decade:
  - Primarily in construction, manufacturing, mining, administrative support, and financial services; new jobs also in hospitality.
  - Many new jobs were low-paid relative to the Omani private sector average, indicating concentration in low-skilled, low-paid employment.

### Recent policy measures and labor law reforms
- July 2023: new social protection law created a unified system merging government-supported social protection programs and social insurance under the Social Protection Fund, providing benefits for Omanis and expatriates.
- July 26, 2023: new Labor Law (Royal Decree 53/2023) overhauled labor regulations to align with Oman Vision 2040 and international labor standards.
- Key features of reforms:
  - Standardize social insurance and ensure equal pension rights across public and private sectors; mitigate fragmentation of the pension system.
  - Promote remote working options and modern work arrangements.
  - Broaden insurance benefits to cover maternity and paternity leave, sickness, and employment injury; from 2026 shift end-of-service expatriate indemnities to the Provident Fund managed by the Social Protection Fund.
  - Enhanced maternity leave to 98 days and introduction of paternity leave to support female labor force participation.
  - Anti-discrimination clauses and protections for expatriates.
  - Omanization requirements: employers must formulate and gain approval for an Omanization plan from the Ministry of Labor, including promoting Omanis to leadership positions; if an Omani is dismissed for poor performance they must be replaced by another Omani; restrictions on termination of Omanis in favor of expatriates under similar competencies in workforce reductions.
  - Collective dispute resolution: introduction of arbitration for collective disputes through the Collective Labor Disputes Arbitration Committee.
  - Fixed-term contract rule: fixed-term contracts do not automatically transition to indefinite term contracts unless employment persists beyond five years.

### Identified policy priorities and complementary actions (from analysis)
- Enhance and broaden the skillset of the Omani workforce through upskilling and reskilling measures to align supply with nonhydrocarbon diversification needs under Oman Vision 2040.
- Balance integration of Omanis into the private sector while ensuring the labor market remains flexible enough to attract foreign investment and skilled expatriate professionals.
- Address bottlenecks in the labor market including education-quality gaps, low vocational enrollment (less than 2 percent of higher education enrollment), wage mispricing driven by public sector reservation wages, and limited labor mobility.
- Leverage newly introduced social protection and labor law measures to:
  - Increase female labor participation (enhanced maternity leave of 98 days, introduction of paternity leave, survivor benefits, universal pension provisions).
  - Improve job prospects for Omanis in the private sector via mandated Omanization plans and protections favoring Omani employment.

*Prepared by Bilal Tabti and Haytem Troug; based on IMF staff analysis in the provided content.*

### Introduction of redundancy. For the first time, redundancy due to "economic cause" is recognized,

### Introduction of redundancy. For the first time, redundancy due to "economic cause" is recognized,

### Labor law changes: redundancy, leave, retirement, and expatriate benefits
- Redundancy due to "economic cause" is recognized for the first time, granting employers flexibility to manage workforce adjustments, subject to approval from an interministerial special committee that also includes the Chamber of Commerce and the General Federation of Workers.
- Expanded leave provisions broaden statutory leave, introducing several new scenarios and extending existing ones to align leave provisions more closely with international norms, including:
  - extended maternity and sick leave,
  - paternity leave,
  - special provisions for nursing workers,
  - unpaid leave for childcare.
- Retirement and expatriate worker benefits:
  - The retirement age will gradually increase until it reaches 65 for men and 60 for women, with an adjustment in early retirement eligibility and benefits.
  - The law enhances benefits for expatriate workers by introducing sickness and injury benefits and overhauling the end-of-service grant to a funded account system.

### Current incentives and programs to hire nationals
- Time-bound subsidies to employers:
  - Ministry of Labor (MoL) introduced during the pandemic a wage support scheme covering under 4 thousand workers, whereby the government subsidizes OMR 200 per month of a worker’s salary for a period not exceeding two years.
  - This subsidy is raised to OMR 400 per month for SMEs and is targeted at workers with at least a vocational diploma.
- Upskilling initiatives:
  - Government covers the cost of training courses provided to job seekers, with some training schemes guarantying a job offer upon completion, and a monthly allowance during training.
  - Monthly training allowances are also offered to new hires working in firms that wish to provide training themselves, with more generous subsidies for SMEs, where wages are entirely covered by the government during the first year of employment.

### Assessment of current incentives and comparative context
- Effectiveness concerns:
  - The wage support scheme covers less than 1 percent of employed Omanis.
  - Upskilling initiatives have so far benefited a limited number of workers.
- Regional comparisons:
  - Bahrain’s National Employment Program (NEP) subsidizes nationals’ employment for the first three years.
  - Kuwait and the United Arab Emirates have permanent subsidies to employ nationals, whose cost is partly covered by expatriate fees.
- Evidence on quota costs:
  - Quantitative evidence for Saudi Arabia (Peck, 2017) shows enforcement of quotas comes at a large cost for firms and aggregate employment: while Nitaqat created 63 thousand jobs for Saudi citizens, the program is estimated to be responsible for decreasing total employment by 948 thousand workers and causing 11,000 firm exits (a 50 percent increase in exit rates).
  - Related research (Cortés et al., 2023) finds quota enforcement associated with reduction in firm headcount, an increase in the probability of firm exit, a decrease in the probability of continuing to export, and in the volume of exports.

### Policy recommendations (labor market and public sector reforms)
- Strengthen alignment of wages with productivity:
  - Align public sector wages and benefits with productivity through the forthcoming Public Employment Law and ongoing Ejada system efforts to ensure rating scale, incentives, and promotion are aligned to performance.
- Scale up active labor market policies:
  - Strengthen and expand training initiatives; adopt a dual-education system merging vocational education with on-site training in collaboration with the private sector.
  - Enhance quality of educational institutions to attract young Omanis to majors in technology and science.
- Boost female labor force participation:
  - Scale up investment in early childhood education.
  - Enhance access to financing for female entrepreneurs.
  - Expand leadership programs under the Royal Academy of Management for aspiring Omani women to ascend to senior positions.
  - Invest further in digital infrastructure to facilitate flexible work arrangements under the new Labor Law.
- Calibrated use of quotas and fees:
  - Allow firms to hire expatriates freely when needed while requiring a fee for each expatriate hired over quota; channel revenues to skill development of nationals.
  - Narrow incentive-based policies to sectors with low quota requirements to lower fiscal costs.
- Enhance labor mobility for expatriates:
  - Adopt a more flexible migration policy to underpin market incentives (promotions and higher wages), encourage skill development, and attract mid to high-skilled expatriates to support productivity gains.

### SMEs and entrepreneurship: role, obstacles, and recent reforms
- Role and recent statistics:
  - SMEs represented around 98 percent of firms, contributed to about 33 percent of nonhydrocarbon GDP, and employed 76 percent of the private sector workforce in 2023.
  - Oman needs to create around 30 thousand new jobs annually between 2024 and 2032 to absorb the entry of a young and increasingly educated labor force.
- Declining startup rates:
  - Startup rate for newly registered limited liability companies fell from 14.5 percent in 2006 to 6.5 percent in 2020.
- Post-COVID rebound:
  - SME share of the private sector workforce increased from 68 percent in 2020 to 76 percent in 2023.
  - SME contribution to nonhydrocarbon GDP slightly increased following the pandemic to almost 33 percent.
- Obstacles to SME development:
  - Limited access to credit:
    - Non-performing loans are estimated at almost one third of total loans to the sector.
    - Central Bank of Oman (CBO) recommended a floor of 5 percent of commercial banks’ loan portfolio to be allocated to SMEs; actual allocation reached 3.7 percent in 2022.
  - Insufficient risk-taking incentives:
    - Insolvency legislation until recently did not provide for a path towards financial rehabilitation allowing distressed entrepreneurs to continue operations.
    - High capital thresholds for limited liability company registration previously disincentivized separation of personal and business assets.
  - Public sector wages and job security act as deterrents to entrepreneurship.
- Recent policy actions to support SMEs:
  - 2019 Bankruptcy Law allows distressed companies to continue operating under certain conditions.
  - 2019 Commercial Companies Law facilitates One-Person Limited Liability Companies.
  - Credit Bureau (Mala’a) established to enhance credit decisions.
  - Invest Easy One-Stop Shop launched in 2021; home businesses and freelancers can obtain commercial registration numbers.
  - SME Development Authority (Riyada) initiatives in partnership with Oman Development Bank (ODB):
    - More than 400 projects financed since 2022 for a total of OMR 38 million.
    - Grants system launched supporting 67 projects so far.
    - Family Offices engagement to support SMEs as Angel Investors.
  - ODB loan facilities: micro projects up to OMR 20 thousand and SMEs up to OMR 250 thousand.
  - Trade credit insurance via Credit Oman available for SMEs.
  - OIA’s Future Fund Oman: an OMR 2 billion growth fund targeting 10 percent of its investments in SMEs—reaching OMR 60 million as of September 2024.
  - Private sector finance initiatives:
    - Bank Muscat’s "al Wathbah" collateral-free lending program.
    - SME Development Fund (established 2014) provides subsidized credit up to OMR 500 thousand.
    - Crowdfunding available since 2021 with 9 platforms registered.
    - Plans for a parallel stock market for emerging businesses and an investment company focused on SME financing in industries targeted by Oman Vision 2040.
  - Better integration measures:
    - SMEs exempt from registration fees on Esnad and benefit from a 10-percent price differential preference in government procurement.
    - OPAZ programs targeting 10 percent of contract values allocated to SMEs and reduced registration and service fees for SMEs within SEZs.
    - Riyada-OPAZ SME incubators and increased access to finance in SEZs through the Tawasul Fund (in partnership with ODB).

*Source: 1omnea2025002-print-pdf - Introduction of redundancy. For the first time, redundancy due to "economic cause" is recognized,*

### 9.      Ongoing reforms are steps in the right direction, but more remains to be done.

### 9.      Ongoing reforms are steps in the right direction, but more remains to be done.

### Encouraging risk-taking
- Modernizing insolvency frameworks would help foster innovation and encourage entrepreneurship.
- Tailoring insolvency procedures to SMEs:
  - The newly introduced restructuring procedure in Oman does not cover businesses in operation for less than two years and post-bankruptcy rehabilitation lacks debt forgiveness.
  - Recommended amendments (drawing on Bahrain’s example) include:
    - (i) considering a streamlined and less costly procedure for SMEs; and
    - (ii) offering a path of financial rehabilitation to business owners by allowing non-consensual debt relief.
  - Insolvency procedures for SMEs should allow entrepreneurs to remain in control of the business given their importance in business operation compared to larger firms (World Bank, 2022).
  - Evidence: reforms aimed at streamlining the reorganization process are associated with stronger firm recovery (Gine and Love, 2010).
- Adopting an Early Warning Tool:
  - An Early Warning Tool aimed at identifying debtors’ emerging difficulties to support early interventions could be considered, drawing from the experience of Denmark and France (World Bank, 2022).
- Specific administrative effects cited:
  - Registration fees for SMEs within SEZs dropped from OMR 1 thousand to between OMR 30 and 40, while OPAZ service fees were reduced by 50 percent.

### Enhancing access to finance by mobilizing the private sector
- Current situation:
  - Many initiatives to support access to finance remain concentrated in public financial institutions, which may lack expertise in screening and monitoring businesses compared with private banks.
- Credit guarantee schemes (CGS) to strengthen incentives for commercial banks to expand credit to SMEs:
  - CGS can alleviate collateral constraints and push the risk frontier by allowing governments to spread risks and leverage private lenders’ screening and monitoring capabilities (Anginer et al., 2014).
  - Empirical evidence supports the effectiveness of CGS in supporting SMEs’ access to finance (Zecchini and Ventura, 2009).
- Important design considerations for CGS:
  - Guarantee coverage:
    - Partial guarantees (less than 100 percent) mitigate moral hazard and incentivize monitoring by commercial banks but may not reach all business segments.
    - In nascent industries or priority sectors, full coverage may need assessment (example: Korea’s Technology Guarantee Fund may cover up to 100 percent of the loan).
    - In the US “7a” loan program, coverage ratio is cited as 85 percent for loans under $500 thousand and 75 percent otherwise; collateral is not required for loans under $50 thousand.
  - Ownership structure:
    - Private sector involvement tends to be associated with better financial performance (Beck et al., 2010).
    - Full private ownership through mutual guarantee schemes (MGS), e.g., Italy’s Confidi system, can leverage local enterprises’ information advantages and peer pressure for credit assessment.
- Complementary reforms:
  - Mala’a’s continued reforms to become a full-fledged credit bureau would maximize the gains of insolvency and financial access reforms by fully utilizing credit bureau information for appraisal of creditworthiness of loan guarantees and leveraging personal credit history to complement personal insolvency legislation.
- Scaling up FinTech:
  - The CBO’s FinTech Accelerator Program is supporting two startups focused on microfinance and loan-based crowdfunding and should continue to enhance SMEs’ financial inclusion.
  - FinTech loans can be junior unsecured loans that catalyze future access to bank finance; evidence from France shows access to FinTech loans was used to acquire assets that could be pledged as collateral and led to a subsequent significant increase in bank credit (Beaumont et al., 2024).

### Helping SMEs and entrepreneurs grow
- Strengthen integration of SMEs into SEZs value chains:
  - The diversity of industries across SEZs presents an opportunity for SME growth; pilot initiatives to facilitate SME integration in SEZs should be expanded.
  - Focus on connecting large multinational enterprises (MNEs) operating in SEZs with SMEs by identifying the needs of MNEs and helping SMEs acquire the knowledge and skills to supply large foreign firms.
  - Policies to enhance spillovers from MNEs and increase local SME capacity could include:
    - Support in technology acquisition, digitalization, and R&D across SMEs through grants and business incubators; later complement with support in reaching export markets through financial assistance, marketing, and connections to foreign enterprises and investors.
    - Increasing the skillset of labor in SMEs and encouraging labor mobility of expatriates, which could involve wage subsidies or time-bound cash grants for SMEs to hire skilled foreign workers, incentives to encourage high-skilled expatriates to create SMEs within SEZs, and stronger collaboration between universities and SEZs to adapt programs to business requirements and incentivize internships.
    - Identifying collaboration opportunities between local SMEs and large MNEs and helping SMEs meet production requirements for foreign companies; leverage the Invest Oman initiative to promote domestic SMEs, connect them with foreign MNEs, assess needs and support upskilling (example reference: Investment Development Agency in Portugal).
- Examples of international practices to draw upon:
  - Czech Match and Czech Accelerator programs for connecting SMEs with foreign partners and providing space in foreign incubators.
  - Portugal’s Inov Contacto program supporting high-skilled graduates through internships in local firms and multinational companies abroad.
  - Portugal’s AICEP “Suppliers Clubs” initiative matching foreign and domestic firms and providing financial support to help local SMEs meet foreign firms’ requirements.

### Box 1 — Corporate Bankruptcy Reform in Oman
- Key features of Oman’s Bankruptcy Law (Royal Decree 53/2019, effective 2020):
  - Offers the possibility for distressed business owners to restructure their debt while continuing operations.
  - Restructuring is expected to occur with minimum court supervision, facilitated by the Ministry of Commerce as mediator, and does not require a high threshold of creditors to agree.
- Caveats:
  - The company needs to be in operation for at least two years, potentially discouraging new entrepreneurs to start riskier projects.
  - Even if a majority of creditors agree to restructure the company debt, the agreement does not bind non-participating parties.
- Other alternatives in the law:
  - (i) bankruptcy, and (ii) preventative composition.
  - Bankruptcy does not imply debt forgiveness; preventative composition requires a majority of creditors holding two thirds of claims to consent and is binding to all creditors but does not lead to non-consensual debt discharge.
- Post-law features and gaps:
  - The law no longer imposes civil disabilities to bankrupt owners of liquidated companies, but creditors remain entitled to enforce claims following the post-bankruptcy period (3 years).
  - The law lacks a simpler procedure for small businesses that addresses SME-specific characteristics such as greater creditor disengagement and lower business sophistication.
- Recommended directions for reform:
  - Introduce a bankruptcy reform providing a streamlined procedure for SMEs in line with international standards (United Nations, 2024), including lower documentation requirements, supervision by insolvency specialists, simplified procedures for liquidation and reorganization, simpler plan approval mechanisms, minimal use of courts, and financial support to small businesses to start the bankruptcy procedure (World Bank, 2022).
- Regional example:
  - Bahrain’s 2018 reforms allow individual entrepreneurs to be discharged of their debt following bankruptcy under certain conditions, include provisions benefiting small businesses below an asset threshold of BHD 10 thousand (no trustee or creditor committee required; reorganization plans by simple majority; court empowered to impose a plan; shortened timelines; financial support to cover bankruptcy proceedings expenses).

*Source: IMF — chapter "9.      Ongoing reforms are steps in the right direction, but more remains to be done." from 1omnea2025002-print-pdf*

### 3. Oman’s digitalization agenda covers a broad range of areas. To achieve the targets of

### 3. Oman’s digitalization agenda covers a broad range of areas. To achieve the targets of

### Overview and Objectives
- National Digital Economy Program comprises seven medium-term programs: (i) Digital Government Program; (ii) Digital Infrastructure Program; (iii) Digital Industry Program; (iv) E-commerce Program; (v) Artificial Intelligence and Advanced technologies Program; (vi) Space Program; and (vii) Fintech.
- Example program targets:
  - Artificial Intelligence and Advanced technologies Program: increase the number of startups specialized in AI technologies’ development and SMEs providing AI-related services by 20 percent annually.
  - Digital Industry Program: attract 5 global tech companies to establish operational units in Oman by 2025.
  - Fintech Program: licensing of 500 fintech operators by 2040.
- Paper objectives:
  - Overview Oman’s progress on digitalization across infrastructure, skills, innovation, e-government, fintech, and e-commerce.
  - Quantify potential gains from enhanced digitalization in terms of government effectiveness and GDP per capita using empirical analyses.
  - Lay out policy recommendations to accelerate digitalization and manage associated risks.

### Digital Infrastructure: Current Status and Gaps
- Achievements and comparisons:
  - Oman has achieved about 100 percent 4G coverage.
  - 5G coverage: GCC average 88 percent of the population versus OECD average 70 percent (Oman and GCC peers ahead of OECD on 5G coverage).
- Remaining gaps:
  - International internet bandwidth capacity and mobile and fixed broadband subscriptions lag the GCC average.
- Internet penetration and speeds:
  - About 98 percent of Oman’s population used the internet as of early 2024.
  - Active cellular mobile connections amounted to the equivalent of 151 percent of the total population (early 2024).
  - Median mobile internet connection speed at 77 Mbps and median fixed internet connection speed at 71 Mbps in April 2024.
  - Oman ranks 38th globally on median internet connection speed (April 2024).

### ICT Skills and Digital Innovation
- ICT skills:
  - Individuals possessing basic ICT skills: 75 percent in 2020-21.
  - Individuals possessing advanced ICT skills: 8 percent in 2020-21.
  - Oman exceeded the average for advanced economies on basic ICT skills but lags GCC frontrunners on both basic and advanced ICT skills.
- Innovation and R&D:
  - Global Innovation Index ranking improved from 80th in 2019 to 69th in 2023.
  - Local production index for digital goods and services: 12.5 (slightly below the GCC average).
  - Oman’s R&D spending: about 0.3 percent of GDP.
  - Patent applications: comparatively low relative to countries such as Chile, Malaysia, Norway, and Russia.
- Policy implication:
  - Scaling up R&D spending, developing digital talent, and supporting domestic digital entrepreneurs are necessary to elevate innovation capacity and local digital goods and services production.

### Government Digitalization and GovTech
- Government Digital Transformation Program (launched 2022, runs until 2025) estimated investment: $442 million.
- UN E-Government Index:
  - Oman ranks 41st in 2024, up from 50th in 2022.
  - Oman’s 2025 target: 40th globally (one place short).
- GovTech Maturity Index (GTMI) findings:
  - Areas needing additional effort: public participation platforms, citizen feedback mechanisms, open data, and open government portals.
  - Components tracked include Core Government Systems Index (CGSI), Public Service Delivery Index (PSDI), Digital Citizen Engagement Index (DCEI), and GovTech Enablers Index (GTEI).
- E-procurement:
  - Government procurement fully digitized; e-tendering system enables end-to-end online tender preparation, floating, evaluation, awarding, and supplier/contractor registration and bid tracking.
- Recent initiatives:
  - Launching of the e-Government Services Portal and Oman Open Data Portal to boost data dissemination and citizen engagement.

### Fintech Developments
- Central Bank of Oman (CBO) Fintech Framework and Roadmap launched in 2022 to support a fintech ecosystem.
- Objectives include: fintech-enabling regulatory framework, potential revisions to the Banking Law, and increasing fintech talent pool.
- Partnerships and initiatives:
  - CBO partnered with Sultan Qaboos University and the College of Banking and Financial Studies to develop courses and diploma in financial innovation and technology.
  - CBO signed an MoU with Oman Telecommunications Company (Omantel) Innovation Labs for an Accelerator Program.
  - First cohort: four Omani startups (Buy-Now-Pay-Later, Microfinance, Loan-based Crowdfunding) accelerated and graduated in September 2023 to join the Fintech Regulatory Sandbox.
  - March 2022: Capital Market Authority approved licensing of the country’s first global crowdfunding platform operator.

### E-commerce Market Prospects
- Current size and share:
  - E-commerce accounts for 1 percent of total retail sales in Oman.
  - Market size estimated at about $0.66 billion in early 2024.
  - Oman is behind all other GCC countries in e-commerce market size in per capita terms.
- Growth prospects:
  - Factors supporting growth: near-100 percent internet penetration, smartphone use, scaling IT infrastructure, growing availability of digital payment means, steady economic growth.
  - Some estimates indicate a doubling of market size by 2029 (from $0.66 billion in 2024 to $1.24 billion in 2029 according to Modor Intelligence).
- Regulatory development:
  - September 2023: Ministry of Commerce, Industry, and Investment Promotion issued Oman Ministerial Decision No. 499/2023 to regulate e-commerce activity.

### Quantifying Gains from Enhanced Digitalization
- Methodology:
  - Builds on IMF analysis using yearly country-level data over 2000-2022 assessing digitalization impacts in GCC countries.
- Government Effectiveness:
  - World Bank Government Effectiveness Index ranges between -2.5 and 2.5.
  - Oman’s Government Effectiveness Index: 0.02 (2022 level).
  - GTMI effect estimate from global sample-based cross-country regression: a one unit increase in GTMI leads to a gain of 1.03 units in the Government Effectiveness index.
  - Oman’s GTMI in 2022: 0.84.
  - Saudi Arabia and UAE average GTMI in 2022: 0.97.
  - Projected impact: increasing Oman’s GTMI from 0.84 to 0.97 would increase Oman’s Government Effectiveness Index by 0.14 points.

_Italic: Source — IMF staff chapter on Oman’s digitalization agenda (excerpts provided)._

### 18. Enhanced

### 18. Enhanced

### Digitalization and growth: empirical findings
- A cross-country regression using a global sample regressing GDP per capita growth on the Enhanced Digital Access Index (EDAI) finds a positive association between digital capabilities and economic performance.
- Estimation result: a one unit increase in EDAI accelerates per capita income GDP growth by 0.7 percentage points, ceteris paribus.
- EDAI definition (composite): covers availability of infrastructure, affordability of access, digital knowledge of the population, quality of ICT services, and internet usage (including access to high-speed internet).
- Figure notes: GTMI (GovTech Maturity Index) ranges between 0 and 1. Government Effectiveness ranges between -2.5 and 2.5.

### Oman-specific impacts and scenario estimates
- Estimated counterfactual impacts on Oman’s GDP per capita (2022), given 2021 EDAI scenarios:
  - Actual GDP per capita (2022): $25,057.0
  - Scenario 1 (2021 EDAI = Saudi Arabia, 0.75): GDP per capita (2022) could have been about $813 higher, yielding $25,870.4.
  - Scenario 2 (2021 EDAI = UAE, 0.85): GDP per capita (2022) could have been higher by about $2,586, yielding $27,642.9.
- Note: The EDAI variable is included in the regression equation with a one-year lag (that is, GDP per capita growth in 2022 depends on the 2021 EDAI score).

### Infrastructure gaps and connectivity issues
- Progress: Internet penetration and 4G and 5G population coverage are among the highest in the world for Oman.
- Constraint: International bandwidth is still low compared to the OECD average and significantly low relative to the GCC average, resulting in relatively slow internet connections.
- Potential economic costs: Weak international bandwidth may dissuade technology companies and other bandwidth-intensive operators from locating in Oman, potentially resulting in lost jobs, income, and government revenues.
- Recommended infrastructure actions:
  - Combine regulatory measures and investments, including in extensive fiber optic networks, to enhance bandwidth capabilities and internet speed.
  - Deploy public-private partnerships (PPPs) to share the heavy cost of investments.
  - Expand high-speed internet infrastructure beyond major urban areas to avoid a digital divide and support an inclusive digital ecosystem.

### Human capital, R&D, and innovation policy
- Current state: Oman’s R&D spending is one of the lowest among countries with comparable income.
- Policy directions to foster innovation and ICT skills:
  - Scale up R&D spending, with the public sector initially providing the bulk of additional funding and incentives to encourage gradual private sector R&D investment.
  - Government mitigation for private R&D risks: grants and subsidies, intellectual property protections, simplified regulations, PPPs between firms and public research institutions, and government procurement policies that prioritize innovative products.
  - Immigration policies to facilitate entry of talented researchers and scientists.
  - Education and skills: update curricula for quality STEM programs aligned with emerging technologies; promote digital literacy from an early age; offer continuous professional development opportunities (e.g., coding boot camps).

### Finance, startups, and SME ecosystem
- Financing constraints: Access to finance remains challenging for Omani startups and SMEs due to a financial sector whose depth and breadth remain to be developed further.
- Existing funding instruments: Innovation Development Oman (IDO) and the Oman Technology Fund—both under the Oman ICT Group (ITHCA).
- Recent initiative: Future Fund Oman where 10 percent of the funding envelope will be dedicated to startups and SMEs.
- Policy recommendations to expand funding and ecosystem support:
  - Develop an active local venture capital sector to consistently support creation and growth of startups and SMEs.
  - Accelerate development of fintech to expand fundraising opportunities for innovators.
  - Expand public and private funding channels to meet expected demand if digital startups and SMEs increase in number and size.

### Conclusion and consolidated policy recommendations
- Digitalization momentum in Oman has accelerated with multiple strategic initiatives moving toward implementation across infrastructure, government, finance, artificial intelligence, space, and the private sector.
- Empirical analyses indicate investments in digitalization can confer significant benefits to national income and government effectiveness.
- Priority policy actions:
  - Upgrade international bandwidth and fiber optic networks through investment and regulatory reforms, leveraging PPPs.
  - Scale up R&D spending and create incentives for private R&D participation.
  - Strengthen STEM education, digital literacy, and lifelong ICT skills development.
  - Expand and diversify funding sources for startups and SMEs, including developing venture capital and fintech solutions.
  - Use government procurement, IP protection, simplified regulation, immigration policy, and PPPs to catalyze innovation.

*International Monetary Fund — Chapter 18, "Enhanced"*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1omnea2025002-print-pdf.pdf_