Press Release: IMF Executive Board Concludes 2015 Article IV Consultation with Oman
IMF News, May 5, 2015
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- Published: May 5, 2015
Economic outlook
- Non-hydrocarbon growth rate forecast:
- 6.5 percent in 2014
- 5 percent in 2015–16
- 4.5 percent in 2017-20
- Risks are tilted to the downside.
- Inflation:
- Average inflation rate remained at 1 percent in 2014.
- Inflation projected to remain below 3 percent in the medium term.
- Oil market risk:
- Oil market developments present the main risk to the medium-term outlook.
- A further drop in oil prices would worsen the fiscal and economic outlook.
Fiscal outlook and public finances
- Fiscal balances and breakeven price:
- Decline in oil prices expected to push fiscal and current account balances to deficits from 2014/15.
- Breakeven oil price rose to US$108 per barrel in 2014.
- Overall fiscal balance projections:
- Overall fiscal deficit projected at 14.8 percent of GDP in 2015.
- Fiscal deficits would remain in double digits over the medium-term in the absence of fiscal reforms.
- Debt and financing scenarios:
- Without further fiscal adjustment, financing the projected cumulative fiscal deficit between 2015 and 2020 would exhaust fiscal buffers and raise debt to about 25 percent of GDP, or increase government debt to over 70 percent of GDP by 2020 if buffers were to be preserved.
- Revenue and expenditure dynamics (central government, percent of GDP):
- Revenue and grants: 40.6 (2010), 48.9 (2011), 49.5 (2012), 49.2 (2013), 47.3 (2014), 41.2 (2015), 42.5 (2016)
- Hydrocarbon: 34.6 (2010), 44.0 (2011), 43.6 (2012), 41.5 (2013), 32.5 (2014), 33.0 (2015)
- Nonhydrocarbon and grants: 6.1 (2010), 4.9 (2011), 5.9 (2012), 5.6 (2013), 5.7 (2014), 8.7 (2015), 9.5 (2016)
- Expenditure: 36.5 (2010), 41.4 (2011), 46.8 (2012), 47.4 (2013), 50.3 (2014), 57.8 (2015), 55.7 (2016)
- Overall fiscal balance: 9.4 (2010), 3.2 (2011), -1.5 (2012), -14.8 (2014), -11.6 (2015)
Banking system and financial sector
- Capital adequacy and asset quality (end-September 2014):
- Capital adequacy ratio: 15.1 percent.
- Net nonperforming loans: 0.6 percent.
- Provisioning ratio: 136 percent.
- Stress test findings:
- Under a combination of interest rate and market shocks, the solvency of the banking system would be preserved.
- Some banks would be required to raise capital to meet the central bank’s regulatory capital requirement.
- Liquidity and risks:
- Banks’ liquidity situation supports meeting emerging private sector credit demand and further financial deepening.
- A sudden sharp withdrawal of government deposits would induce liquidity pressures; coordination between the CBO and the government and temporary CBO liquidity injection would be needed if such a shock occurred.
- Policy implications for the Central Bank of Oman (CBO):
- Remain vigilant in monitoring and managing evolving risks.
- Consider measures to enhance capital cushions and strengthen banks’ risk management capacity.
Structural reforms and diversification
- Need to strengthen efforts toward economic diversification to reduce dependence on oil and generate jobs for nationals.
- Improve the business environment by removing impediments to physical, legal, and business infrastructure.
- Enhance coordination among agencies developing the SMEs segment.
- Develop domestic debt markets to strengthen diversification and reduce banks’ concentration risks.
Fiscal policy recommendations (Executive Board)
- Begin fiscal adjustment early given limited buffers and high breakeven oil prices; delay would force deeper and less gradual adjustments later.
- Contain expenditure growth and increase non-oil revenues:
- Expenditure measures:
- Curtail increase in government jobs in civil and defense services and keep growth in government employee compensation constant in real terms.
- Gradually phase out subsidies, complemented by a social safety net, other targeted mitigating measures, and a well-designed communication strategy.
- Rationalize defense spending.
- Implement reforms in a phased manner while preserving room for capital expenditures.
- Revenue measures:
- Expand tax categories and reconsider tax rates and exemptions for corporates.
- Identify new sources such as selected excises, VAT, and property taxes.
- Implementing a tax on outward remittances is discouraged as inefficient and potentially harmful to competitiveness.
- Introducing income tax for nationals and expatriates is identified as a less distortive alternative.
- Public financial management reforms:
- Integrate the dual budget.
- Establish a medium-term budget framework integrated with the medium-term macroeconomic framework.
- Improve the public financial management system.
- Strengthen the macrofiscal unit to provide expertise.
Selected Economic Indicators (high-level)
- Nominal GDP (US$ billions): 56.8 (2010), 67.7 (2011), 75.4 (2012), 77.0 (2013), 77.8 (2014), 62.9 (2015), 68.8 (2016)
- Real GDP (percentage change): 4.8 (2010), 4.1 (2011), 5.8 (2012), 4.7 (2013), 2.9 (2014), 4.6 (2015), 3.1 (2016)
- Real hydrocarbon GDP: 5.5 (2010), 2.1 (2011), 3.0 (2012), -0.5 (2013), 4.2 (2014), 1.1 (2015)
- Real nonhydrocarbon GDP: 6.4 (2010), 7.7 (2011), 6.5 (2012), 5.0 (2013)
- Consumer prices (average): 3.3 (2010), 4.0 (2011), 1.2 (2012), 1.0 (2013), 2.6 (2014)
- Credits to the private sector (annual percentage change): 6.2 (2010), 13.0 (2011), 14.9 (2012), 6.8 (2013), 10.9 (2014)
- Broad money (annual percentage change): 11.3 (2010), 12.2 (2011), 10.7 (2012), 8.5 (2013), 12.0 (2014)
- Exports of goods (US$ billions): 36.6 (2010), 47.1 (2011), 52.1 (2012), 56.4 (2013), 55.6 (2014), 41.8 (2015), 46.5 (2016)
- Oil and gas exports (US$ billions): 25.2 (2010), 33.4 (2011), 36.3 (2012), 37.3 (2013), 35.4 (2014), 21.5 (2015), 24.0 (2016)
- Imports of goods (US$ billions): -17.9 (2010), -21.5 (2011), -25.6 (2012), -31.8 (2013), -32.7 (2014), -31.1 (2015), -34.2 (2016)
- Current Account (Percent of GDP): 8.9 (2010), 13.2 (2011), 10.3 (2012), 6.6 (2013), 2.2 (2014), -15.0 (2015), -13.0 (2016)
- Central Bank gross reserves (US$ billions): 14.4 (2010), 14.3 (2011), 16.0 (2012), 16.3 (2013), 16.7 (2014), 17.0 (2015)
- In months of next year's imports of goods and services: 5.3 (2010), 4.5 (2011)
- Real effective exchange rate (2010 = 100): 100.0 (2010), 97.2 (2011), 100.4 (2012), 103.0 (2013), 103.9 (2014)
Source: Press Release: IMF Executive Board Concludes 2015 Article IV Consultation with Oman (May 5, 2015).