IMF Staff Concludes 2019 Article IV Visit to Oman
IMF News, April 11, 2019
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Bibliographic details
- Published: April 11, 2019
Visit and context
- IMF team led by Stéphane Roudet visited Muscat from March 26 to April 8 to hold the 2019 Article IV consultation discussions with Oman.
- Press Release No. 19/113 dated April 11, 2019 (IMF Communications Department).
Economic activity and outlook
- Findings:
- Real non-hydrocarbon GDP growth reached a low of 0.5 percent in 2017 and is estimated to have increased to 1.5 percent in 2018.
- Oil and gas production increases brought overall real GDP growth to 2.2 percent in 2018.
- Non-hydrocarbon growth is projected to increase gradually over the medium term, reaching about 4 percent, assuming efforts to diversify the economy continue.
Fiscal position and projections
- Findings:
- Preliminary budget execution data indicate an improvement in the overall fiscal balance in 2018.
- The fiscal deficit is estimated to have declined to about 9 percent of GDP in 2018 from 13.9 percent of GDP in 2017.
- Budget implementation remained challenging, with some spending overruns and tax revenue underperformance.
- The underlying (non-oil) primary balance deteriorated due to higher spending after several years of improvement.
- Projections and scenarios:
- The fiscal deficit is projected to decline to about 8 percent of GDP in 2019, as the impact of lower oil prices is more than offset by a decline in spending, one-off revenue, and implementation of a new excise tax on selected products.
- Further efforts to curtail spending and the planned introduction of VAT could reduce the deficit by another two percentage points of GDP over the next two years.
- Thereafter, assuming the IMF’s projected gradual decline in oil price and production materializes, and given the expected increase in interest payments, the fiscal deficit would increase again, pushing government and external debt up and increasing vulnerability to shocks.
- Policy recommendations:
- Lay out and implement an ambitious medium-term fiscal adjustment plan.
- Tackle current spending rigidities—particularly on the wage bill and subsidies.
- Streamline public investment.
- Raise non-hydrocarbon revenue.
- Prioritize measures to limit the impact of fiscal consolidation on growth and place more of the adjustment burden on those best able to shoulder it.
- In the near term, expeditious introduction of VAT and measures to adjust government expenditure are of the essence.
External position and exchange rate
- Findings:
- Gross international reserves of the Central Bank of Oman increased by about US$1.3 billion in 2018 to US$17.4 billion.
- The government’s external assets in the State General Reserve Fund provide additional buffers.
- The exchange rate peg to the U.S. dollar is considered appropriate given the structure of the economy.
- Assessment:
- External buffers remain adequate.
Structural reforms, private sector, and labor market
- Findings and recommendations:
- Accelerating structural reforms is paramount to promote private investment and job creation, improve productivity and competitiveness, and advance diversification.
- Better aligning public sector wages and benefits with the private sector and sustaining efforts to improve education and training is key.
- The government recently adopted important reforms in commercial law and arbitration and licensing procedures.
- Vision 2040’s emphasis on fiscal sustainability, governance and rule of law is welcome.
- Further efforts to strengthen the business environment include reducing obstacles to foreign direct investment, fostering competition, and further easing trade barriers to strengthen external competitiveness.
- Accelerating diversification efforts under the Tanfeedh program could help raise non-hydrocarbon exports.
Financial sector resilience
- Findings:
- Banks benefit from high capitalization, low non-performing loans, and strong liquidity buffers.
- Recommendation:
- Maintaining strong regulation and supervision will help strengthen resilience and ensure sustained growth.
Engagement and cooperation
- The IMF team valued candid discussions with the Omani authorities and expressed gratitude for their hospitality and excellent cooperation.
IMF Staff Concludes 2019 Article IV Visit to Oman — Press Release No. 19/113 (April 11, 2019).