## 1. The Omani economy needs to create ## Source details **Canonical URL:** [1. The Omani economy needs to create](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025034.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025034.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025034.pdf.json) --- ### Jobs outlook and demographics - More than 220 thousand jobs for nationals need to be created over the next eight years. - 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, against 103 thousand newly created jobs for Omanis during 2012-2019. - Using the public sector as an employment vehicle is no longer a feasible option under current efforts to entrench medium-term fiscal sustainability while reducing reliance on hydrocarbon revenues. ### Labor market structure and bottlenecks - Segmentation and sectoral distribution - 56 percent of the Omani workforce finds employment within the private sector. - Expatriate workers make up 68 percent of Oman's overall employed labor force, and 86 percent of private sector jobs. - Omani workers exceed 70 percent of total workers in sectors dominated by SOEs, including electricity and mining. - Omani workers constituted less than 15 percent of the workforce in sectors such as tourism, construction, and real estate. - Wage differentials and substitutability - Staff estimates that Omanis’ wages are, on average, around twofold higher than those of expatriate workers occupying similar roles. - Large public-private wage gaps and the lack of a minimum wage for expatriates contribute to low substitutability between Omani and expatriate workers at current wages, especially in lower-skilled jobs. - Skills mismatch and education - Oman’s education system and educational attainment lag regional counterparts and emerging markets/advanced economies. - Enrollment in vocational education represents less than 2 percent of enrollment in higher education. - Educational choices are tilted toward humanities and business administration rather than science, engineering, and technology. - Female participation and barriers - Female labor market participation rate stands around 32 percent in Oman in 2023, compared to 89 percent for men. - Women outperform men in educational attainment and test scores but hold much fewer senior and managerial roles. - Mobility and contract constraints - Previous requirement for expatriates to remain with their initial employer for 12 months limited mobility, reduced bargaining power, depressed wages, and discouraged skill upgrading among expatriates. - Limited mobility removed incentives (promotions, higher wages) that could raise productivity in nonhydrocarbon sectors. ### Recent trends in employment (selected facts) - Pre-pandemic (2013-2019) - Employment grew more than twice as fast for Omanis than for expatriates. - Employment growth for Omanis was four times higher in the private sector (44 percent) than in the public sector (12 percent) between 2013 and 2019. - Employment for Omani women was 38 percent higher in 2019 compared to 2013; for men, employment grew by 24 percent over the same period. - 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 by 2019; for men the share rose from 57 percent to 62 percent. - Post-pandemic (2020-2023) - Employment grew more than twice as fast for expatriates than for nationals compared to the pre-pandemic period. - Among Omanis, private sector employment grew more than twice as fast (18 percent) than public sector employment (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 new jobs - New Omani jobs over the last decade concentrated in construction, manufacturing, mining, administrative support, financial services, and hospitality. - Many of these jobs—especially in construction, manufacturing, and administrative support—tended to offer compensation below the Omani private sector average, indicating concentration in low-skilled, low-paid roles. ### Policy measures, reforms, and their intended effects - Social protection and labor law reforms - New social protection law enacted in July 2023, creating a unified system merging government-supported social protection programs and social insurance under the Social Protection Fund, providing benefits for Omanis and expatriates. - Upgraded labor law aims at enhancing job prospects for Omanis in the private sector. - Objectives and provisions intended to increase flexibility and inclusion - Standardize social insurance and ensure equal pension rights across public and private sectors. - Promote remote working options and introduce labor protections for expatriates. - Broaden insurance benefits to cover maternity and paternity leave, sickness, and employment injury benefits, including for expatriates. - Starting in 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 higher female labor force participation. - Introduction of survivor benefits and a universal pension for the elderly to address disparities. ### Key elements of Oman’s New Labor Law (effective July 26, 2023; Royal Decree 53/2023) - Omanization initiatives - Employers must formulate and gain approval for an Omanization plan from the Ministry of Labor, aimed at promoting Omanis to leadership positions. - If an Omani worker is dismissed for poor performance, they must be replaced by another Omani. - The law restricts termination of Omanis in favor of expatriates under similar competencies in workforce reductions. - Collective dispute resolution - Introduces arbitration for collective disputes through the Collective Labor Disputes Arbitration Committee. - Employment contracts and work arrangements - Anti-discrimination clauses added; modern arrangements such as remote work introduced. - Fixed-term contracts do not automatically transition to indefinite term contracts unless employment persists beyond five years. - Redundancy and workforce adjustment - For the first time, redundancy due to "economic cause" is recognized, allowing workforce adjustments subject to approval from an interministerial special committee including the Chamber of Commerce and the General Federation of Workers. - Expanded leave and social protections - Broadened statutory leave provisions including extended maternity and sick leave, paternity leave, special provisions for nursing workers, and unpaid leave for childcare. - Retirement and expatriate benefits - Retirement age will gradually increase until it reaches 65 for men and 60 for women, with adjustments in early retirement eligibility and benefits. - Enhances benefits for expatriate workers by introducing sickness and injury benefits and converting the end-of-service grant to a funded account system. ### Source attribution *Source: sipea2025034 - 1. The Omani economy needs to create* ### 17. Omani policymakers have more recently put a greater emphasis on incentives to hire ### Incentives and programs introduced - Time-bound subsidies to employers: - Wage support scheme introduced during the pandemic covering under 4 thousand workers. - Government subsidizes OMR 200 per month of a worker’s salary for a period not exceeding two years. - Subsidy is raised to OMR 400 per month for SMEs. - Targeted at workers with at least a vocational diploma. - Upskilling and training initiatives: - Government covers the cost of training courses provided to job seekers. - Some training schemes guarantee a job offer upon completion and provide a monthly allowance during training. - Monthly training allowances are offered to new hires in firms that provide training themselves, with more generous subsidies for SMEs. - In SMEs, wages are entirely covered by the government during the first year of employment. ### Assessment of current impact - The wage support scheme covers less than 1 percent of employed Omanis. - Upskilling initiatives have benefited a limited number of workers to date. - Regional policy comparisons: - Bahrain: National Employment Program (NEP) subsidizes nationals’ employment for the first three years. - Kuwait and the United Arab Emirates: permanent subsidy to employ nationals is in place, with cost partly covered by expatriate fees. ### Evidence and risks of quota enforcement - Employment quotas for nationals can be costly and inefficient for firms, distorting optimal hiring choices. - Evidence from Saudi Arabia (Nitaqat): - Nitaqat is estimated to have 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). - Expatriate employment decreased by up to 15 times as much as the increase in Saudi employment. - Related findings (Cortés et al., 2023): - Quota enforcement associated with a reduction in firm headcount. - Increased probability of firm exit. - Decrease in the probability of continuing to export and in the volume of exports. - Lower-skilled and lower-paid Saudi workers substituted for expatriates to meet quota requirements; average wages of Saudis decreased despite a higher wage bill. - Persistent effects of the Nitaqat policy 3 years after policy announcement. ### Policy recommendations (sections 20–25) - Strengthen and complement the new Social Protection and Labor Laws to increase their impact on labor market challenges. - Align public and private sector wages with productivity: - The new Labor Law emphasizes improving productivity and aligning wages with performance in the private sector. - Seek an equivalent approach under the forthcoming Public Employment Law and continue efforts under the Ejada system to ensure rating scales, incentives, and promotion are aligned to performance. - Ensuring public sector wages and benefits are based on productivity could reinforce the attractiveness of private sector jobs for Omanis. - Scale up active labor market policies to reduce skill mismatches: - Education system needs to foster critical thinking and leadership for effective collaboration in work settings. - Existing training initiatives should be scaled up. - Adopt a dual-education system merging vocational education with on-site training in collaboration with the private sector. - Enhance the quality of educational institutions to attract youth into technology and science majors. - Accelerate efforts to 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. - Invest further in digital infrastructure to facilitate flexible work arrangements under the new Labor Law. - Allow firms flexibility to expand while using quota-related revenues to support nationals’ skills: - Firms should be allowed to hire expatriates freely when needed; consider requiring a fee for expatriates hired above quota. - Channel revenues from such fees toward skill development of nationals. - Narrow incentive-based policies to sectors with low quota requirements to lower fiscal costs. - Enhance labor market mobility for expatriate workers to drive aggregate productivity: - Further labor mobility and a more flexible migration policy would underpin market incentives (promotions, higher wages) and competition between Omani and expatriate workers. - Greater mobility could encourage investment in skill development and attract mid to high-skilled expatriates, supporting a transition toward a knowledge-based economy and boosting prospects for aggregate productivity gains. *Source: IMF Selected Issues Paper (sipea2025034), Chapter 17.* ### 1. The Omani economy needs to create ### 1. The Omani economy needs to create ### Jobs outlook and demographics - More than 220 thousand jobs for nationals need to be created over the next eight years. - 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, against 103 thousand newly created jobs for Omanis during 2012-2019. - Using the public sector as an employment vehicle is no longer a feasible option under current efforts to entrench medium-term fiscal sustainability while reducing reliance on hydrocarbon revenues. ### Labor market structure and bottlenecks - Segmentation and sectoral distribution - 56 percent of the Omani workforce finds employment within the private sector. - Expatriate workers make up 68 percent of Oman's overall employed labor force, and 86 percent of private sector jobs. - Omani workers exceed 70 percent of total workers in sectors dominated by SOEs, including electricity and mining. - Omani workers constituted less than 15 percent of the workforce in sectors such as tourism, construction, and real estate. - Wage differentials and substitutability - Staff estimates that Omanis’ wages are, on average, around twofold higher than those of expatriate workers occupying similar roles. - Large public-private wage gaps and the lack of a minimum wage for expatriates contribute to low substitutability between Omani and expatriate workers at current wages, especially in lower-skilled jobs. - Skills mismatch and education - Oman’s education system and educational attainment lag regional counterparts and emerging markets/advanced economies. - Enrollment in vocational education represents less than 2 percent of enrollment in higher education. - Educational choices are tilted toward humanities and business administration rather than science, engineering, and technology. - Female participation and barriers - Female labor market participation rate stands around 32 percent in Oman in 2023, compared to 89 percent for men. - Women outperform men in educational attainment and test scores but hold much fewer senior and managerial roles. - Mobility and contract constraints - Previous requirement for expatriates to remain with their initial employer for 12 months limited mobility, reduced bargaining power, depressed wages, and discouraged skill upgrading among expatriates. - Limited mobility removed incentives (promotions, higher wages) that could raise productivity in nonhydrocarbon sectors. ### Recent trends in employment (selected facts) - Pre-pandemic (2013-2019) - Employment grew more than twice as fast for Omanis than for expatriates. - Employment growth for Omanis was four times higher in the private sector (44 percent) than in the public sector (12 percent) between 2013 and 2019. - Employment for Omani women was 38 percent higher in 2019 compared to 2013; for men, employment grew by 24 percent over the same period. - 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 by 2019; for men the share rose from 57 percent to 62 percent. - Post-pandemic (2020-2023) - Employment grew more than twice as fast for expatriates than for nationals compared to the pre-pandemic period. - Among Omanis, private sector employment grew more than twice as fast (18 percent) than public sector employment (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 new jobs - New Omani jobs over the last decade concentrated in construction, manufacturing, mining, administrative support, financial services, and hospitality. - Many of these jobs—especially in construction, manufacturing, and administrative support—tended to offer compensation below the Omani private sector average, indicating concentration in low-skilled, low-paid roles. ### Policy measures, reforms, and their intended effects - Social protection and labor law reforms - New social protection law enacted in July 2023, creating a unified system merging government-supported social protection programs and social insurance under the Social Protection Fund, providing benefits for Omanis and expatriates. - Upgraded labor law aims at enhancing job prospects for Omanis in the private sector. - Objectives and provisions intended to increase flexibility and inclusion - Standardize social insurance and ensure equal pension rights across public and private sectors. - Promote remote working options and introduce labor protections for expatriates. - Broaden insurance benefits to cover maternity and paternity leave, sickness, and employment injury benefits, including for expatriates. - Starting in 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 higher female labor force participation. - Introduction of survivor benefits and a universal pension for the elderly to address disparities. ### Key elements of Oman’s New Labor Law (effective July 26, 2023; Royal Decree 53/2023) - Omanization initiatives - Employers must formulate and gain approval for an Omanization plan from the Ministry of Labor, aimed at promoting Omanis to leadership positions. - If an Omani worker is dismissed for poor performance, they must be replaced by another Omani. - The law restricts termination of Omanis in favor of expatriates under similar competencies in workforce reductions. - Collective dispute resolution - Introduces arbitration for collective disputes through the Collective Labor Disputes Arbitration Committee. - Employment contracts and work arrangements - Anti-discrimination clauses added; modern arrangements such as remote work introduced. - Fixed-term contracts do not automatically transition to indefinite term contracts unless employment persists beyond five years. - Redundancy and workforce adjustment - For the first time, redundancy due to "economic cause" is recognized, allowing workforce adjustments subject to approval from an interministerial special committee including the Chamber of Commerce and the General Federation of Workers. - Expanded leave and social protections - Broadened statutory leave provisions including extended maternity and sick leave, paternity leave, special provisions for nursing workers, and unpaid leave for childcare. - Retirement and expatriate benefits - Retirement age will gradually increase until it reaches 65 for men and 60 for women, with adjustments in early retirement eligibility and benefits. - Enhances benefits for expatriate workers by introducing sickness and injury benefits and converting the end-of-service grant to a funded account system. *Source: sipea2025034 - 1. The Omani economy needs to create* ### 17. Omani policymakers have more recently put a greater emphasis on incentives to hire ### 17. Omani policymakers have more recently put a greater emphasis on incentives to hire nationals, in addition to long-standing administrative measures ### Incentives and programs introduced - Time-bound subsidies to employers: - Wage support scheme introduced during the pandemic covering under 4 thousand workers. - Government subsidizes OMR 200 per month of a worker’s salary for a period not exceeding two years. - Subsidy is raised to OMR 400 per month for SMEs. - Targeted at workers with at least a vocational diploma. - Upskilling and training initiatives: - Government covers the cost of training courses provided to job seekers. - Some training schemes guarantee a job offer upon completion and provide a monthly allowance during training. - Monthly training allowances are offered to new hires in firms that provide training themselves, with more generous subsidies for SMEs. - In SMEs, wages are entirely covered by the government during the first year of employment. ### Assessment of current impact - The wage support scheme covers less than 1 percent of employed Omanis. - Upskilling initiatives have benefited a limited number of workers to date. - Regional policy comparisons: - Bahrain: National Employment Program (NEP) subsidizes nationals’ employment for the first three years. - Kuwait and the United Arab Emirates: permanent subsidy to employ nationals is in place, with cost partly covered by expatriate fees. ### Evidence and risks of quota enforcement - Employment quotas for nationals can be costly and inefficient for firms, distorting optimal hiring choices. - Evidence from Saudi Arabia (Nitaqat): - Nitaqat is estimated to have 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). - Expatriate employment decreased by up to 15 times as much as the increase in Saudi employment. - Related findings (Cortés et al., 2023): - Quota enforcement associated with a reduction in firm headcount. - Increased probability of firm exit. - Decrease in the probability of continuing to export and in the volume of exports. - Lower-skilled and lower-paid Saudi workers substituted for expatriates to meet quota requirements; average wages of Saudis decreased despite a higher wage bill. - Persistent effects of the Nitaqat policy 3 years after policy announcement. ### Policy recommendations (sections 20–25) - Strengthen and complement the new Social Protection and Labor Laws to increase their impact on labor market challenges. - Align public and private sector wages with productivity: - The new Labor Law emphasizes improving productivity and aligning wages with performance in the private sector. - Seek an equivalent approach under the forthcoming Public Employment Law and continue efforts under the Ejada system to ensure rating scales, incentives, and promotion are aligned to performance. - Ensuring public sector wages and benefits are based on productivity could reinforce the attractiveness of private sector jobs for Omanis. - Scale up active labor market policies to reduce skill mismatches: - Education system needs to foster critical thinking and leadership for effective collaboration in work settings. - Existing training initiatives should be scaled up. - Adopt a dual-education system merging vocational education with on-site training in collaboration with the private sector. - Enhance the quality of educational institutions to attract youth into technology and science majors. - Accelerate efforts to 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. - Invest further in digital infrastructure to facilitate flexible work arrangements under the new Labor Law. - Allow firms flexibility to expand while using quota-related revenues to support nationals’ skills: - Firms should be allowed to hire expatriates freely when needed; consider requiring a fee for expatriates hired above quota. - Channel revenues from such fees toward skill development of nationals. - Narrow incentive-based policies to sectors with low quota requirements to lower fiscal costs. - Enhance labor market mobility for expatriate workers to drive aggregate productivity: - Further labor mobility and a more flexible migration policy would underpin market incentives (promotions, higher wages) and competition between Omani and expatriate workers. - Greater mobility could encourage investment in skill development and attract mid to high-skilled expatriates, supporting a transition toward a knowledge-based economy and boosting prospects for aggregate productivity gains. *Source: IMF Selected Issues Paper (sipea2025034), Chapter 17.* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025034.pdf_