Oman: Staff Concluding Statement of an IMF Staff Visit
IMF News, February 12, 2021
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- Published: February 12, 2021
Mission and scope
- IMF mission led by Mr. Daniel Kanda conducted a virtual mission to Oman from January 17 to 31 to review economic developments, the outlook, and policies.
- Discussions focused on the impact of COVID-19 and related oil price shock, and policy priorities during the recovery phase and beyond.
- Omani authorities indicated they will be favorable to the publication of future IMF reports.
Economic developments and impact of shocks
- Authorities responded rapidly in 2020 with closure of non-essential businesses, social distancing, border restrictions, increased health and medical support, and social assistance.
- Fiscal and financial measures included interest-free emergency loans; waiving or reducing selected taxes and fees; flexibility to pay taxes in installments; establishment of the Job Security Fund; CBO easing through lower interest rates, liquidity injections, deferred loan installment payments, and relaxed macroprudential requirements.
- Overall GDP contracted by 6.4 percent in 2020 (revised up from previous IMF forecast of -10 percent).
- Non-hydrocarbon GDP estimated to have contracted by 10 percent in 2020.
- Hydrocarbon GDP experienced a shallower decline due to strong oil condensate production not covered by OPEC+.
- Sectoral impacts: construction, hospitality, and wholesale and retail trade were particularly hard-hit.
- Inflation turned slightly negative owing to subdued demand.
- Employment: a 15.7 percent reduction in expatriates helped relieve employment conditions; flexibility to negotiate temporary wage cuts also used.
External and fiscal positions (2020)
- Current account deficit estimated to have widened from 5.4 percent of GDP in 2019 to 10 percent in 2020, mostly owing to lower hydrocarbon exports.
- International reserves declined slightly to around US$15 billion (6.5 months of imports).
- Government hydrocarbon revenues fell by 3.4 percent of GDP.
- Non-hydrocarbon revenues fell by 0.2 percent of GDP.
- Fiscal deficit rose by 10.6 percentage points to 17.3 percent of GDP.
- Central government debt rose to 81 percent of GDP, from 60 percent in 2019.
- Financing of the deficit included external bond issuance, drawdown of deposits and sovereign funds, and privatization proceeds.
Policy measures announced by authorities
- Medium-term fiscal adjustment plan (Tawazun) targets elimination of the fiscal deficit over 2021-25 by boosting non-oil revenues while keeping nominal fiscal expenditures broadly constant.
- Oman Investment Authority (OIA) established to strengthen governance and efficiency of public enterprises.
- New holding company Energy Development of Oman (EDO) created to manage and finance government investments in oil, gas, and renewables.
Financial system soundness (as of December 2020)
- Banks’ capital adequacy ratios averaged 19.1 percent.
- Liquidity Coverage Ratio around 200 percent.
- Nonperforming loan ratios increased slightly to 4.2 percent.
- Specific provisioning coverage of 63 percent and total coverage of 98 percent.
- Profitability indicators declined due to COVID-19 impact, loan deferments, and risk provision charges.
Outlook and risks
- Modest recovery anticipated for 2021 with substantial uncertainty.
- Projected mild recovery of 1.5 percent in non-oil GDP growth for 2021, rising to 4 percent by 2026 as drag from fiscal adjustment subsides.
- Roll-out of vaccination and easing of social distancing would support activity; substantial medium-term fiscal consolidation would weigh on growth.
- Upside risks: stronger rebound in global activity, confidence boost from successful fiscal adjustment implementation, successful strengthening of public enterprise governance.
- Downside risks: emergence of COVID-19 variants prolonging pandemic impact and volatility in oil prices significantly affecting outlook and macro balances.
Policy considerations — priorities and sequencing
- Continue to prioritize combating the pandemic (including vaccine rollout), support recovery, minimize long-lasting economic scarring, and mitigate risks to financial stability.
- Withdrawal of fiscal, monetary, and financial support should be carefully coordinated and calibrated to support hard-hit but viable sectors while reducing support where no longer needed.
- With substantial fiscal adjustment planned for 2021, prioritize fiscal support measures (including social safety nets) and accommodate them by streamlining other spending rather than expanding the deficit.
- Once recovery is established, financial policies should be increasingly targeted to reinforce fiscal and external sustainability, safeguard financial stability, and boost potential growth.
Reinforcing fiscal sustainability
- Key revenue measures in the Medium-Term Fiscal Balance Plan: (i) introducing VAT in 2021; (ii) a personal income tax on high-income earners being developed; and (iii) full-year impact of the expansion of the excise tax base in 2020.
- Key expenditure measures: (i) containing the wage bill via civil service reforms; (ii) targeting energy subsidies to the most vulnerable groups; (iii) streamlining capital expenditure; and (iv) broad-based improvements in expenditure efficiency.
- Sustained commitment and active outreach needed to build broad support for measures given impact on activity and household incomes.
- IMF stands ready to provide technical assistance on establishing a sound medium term fiscal framework and a clear fiscal anchor.
- 2021 budget envisages reducing the deficit (excluding oil condensate revenue and oil and gas related expenditure hived off to EDO) by about 6 percentage points of GDP to 7.5 percent.
- Proposed expenditure measures include civil service reform (including obligatory retirement scheme for long serving employees and lower salaries for new hires) and a 5 percent cut of other expenditure.
- Gross financing need projected at 14.5 percent of GDP, with the bulk expected to come from external sources.
Sovereign asset and liability management
- Explicit contingent liabilities of state-owned enterprises about 9.5 percent of GDP in 2019.
- Recommendation to develop a sovereign asset and liability management framework to manage and coordinate sovereign assets and liabilities in an integrated way, detect and mitigate sovereign risk exposures, and adopt a medium-term debt strategy.
- IMF technical assistance could support these efforts.
Safeguarding financial stability
- Banks entered the crisis from a position of strength but face headwinds from asset quality deterioration, a low oil environment, and high credit and deposit concentration.
- Authorities’ stress test indicated domestic banks would remain above minimum capital adequacy under severe scenarios.
- Deferred loan installment payments and associated risk classification could obscure asset quality deterioration; closely monitor emerging credit risks, especially for hard-hit sectors.
- Case-by-case approach by banks to loan deferrals appears appropriate.
- Timing of ending loan deferral policy should be carefully calibrated to support viable sectors without undermining banking system buffers.
- At end-December 2020, deposits from government and government-related entities constituted around 28.3 percent of total deposits.
- Banks’ claims on government and government-related entities increased from 10.3 percent to 19.1 percent of total assets during 2014-2020.
- Strengthening the public sector balance sheet would help reduce public sector financing needs that may crowd out private sector lending.
Boosting potential growth and structural reforms
- Steadfast implementation of structural reforms aligned with Oman Vision 2040 is paramount to promote economic diversification and job creation for Omanis, and support fiscal and external sustainability.
- Areas for reform: restructuring public administration; strengthening governance of state-owned enterprises; improving flexibility of labor markets; strengthening corporate restructuring mechanisms.
- Well-designed social safety nets would support labor reallocation toward expanding sectors.
Selected economic indicators (estimates and projections from Table 1)
- Oil and gas sector:
- Total production of oil and gas (US$ billions): 26.3 (2019), 18.3 (2020), 20.7 (2021), 23.4 (2022), 23.3 (2023), 23.5 (2024)
- Average crude oil export price (US$/barrel): 63.6 (2019), 46.0 (2020), 55.1 (2021), 52.6 (2022), 51.2 (2023), 50.5 (2024), 50.1 (2025), 49.9 (2026)
- Crude oil production (in millions of barrels/day): 0.97 (2019), 0.95 (2020), 0.96 (2021), 1.11 (2022), 1.13 (2023), 1.14 (2024)
- National accounts:
- Nominal GDP (US$ billions): 76.3 (2019), 63.2 (2020), 73.0 (2021), 77.1 (2022), 79.5 (2023), 81.8 (2024), 83.8 (2025), 86.4 (2026)
- Nominal GDP (in billions of Omani rials): 29.3 (2019), 24.3 (2020), 28.1 (2021), 29.6 (2022), 30.6 (2023), 31.5 (2024), 32.2 (2025), 33.2 (2026)
- Real GDP growth: -0.8 (2019), -6.4 (2020), 1.8 (2021), 7.4 (2022), 2.7 (2023), 2.2 (2024), 1.7 (2025), 2.0 (2026)
- Real hydrocarbon GDP: 1.4 (2019), -2.4 (2020), 12.6 (2021), 2.9 (2022), 1.5 (2023), 0.1 (2024)
- Real nonhydrocarbon GDP: -2.8 (2019), -10.0 (2020), 2.3 (2021), 2.4 (2022), 3.0 (2023), 3.4 (2024), 4.0 (2025)
- Consumer prices (average): -0.9 (2019), 3.9 (2020), 2.5 (2021), 2.8 (2022), 1.0 (2023), 0.9 (2024)
- GDP Deflator: -3.5 (2019), -11.6 (2020), 13.6 (2021), -1.7 (2022), 0.4 (2023), 0.7 (2024), 0.8 (2025)
- Central government finances:
- Revenue and grants: 38.1 (2019), 34.3 (2020), 33.3 (2021), 35.5 (2022), 35.7 (2023), 36.3 (2024), 35.9 (2025), 35.6 (2026)
- Hydrocarbon revenue: 30.1 (2019), 26.7 (2020), 22.4 (2021), 23.8 (2022), 23.2 (2023), 22.8 (2024), 22.3 (2025)
- Nonhydrocarbon and grants: 7.9 (2019), 7.7 (2020), 10.8 (2021), 11.7 (2022), 12.5 (2023), 13.0 (2024), 13.1 (2025), 13.3 (2026)
- Expenditure: 44.1 (2019), 51.6 (2020), 38.6 (2021), 37.6 (2022), 37.4 (2023), 36.4 (2024), 35.3 (2025), 34.8 (2026)
- Current expenditure: 41.8 (2019), 34.6 (2020), 34.4 (2021), 33.6 (2022), 32.5 (2023), 31.9 (2024)
- Capital expenditure: 8.4 (2019), 9.8 (2020), 3.2 (2021)
- Overall balance (Net lending/borrowing): -6.7 (2019), -17.3 (2020), -5.4 (2021), -2.1 (2022), -0.1 (2023), 0.6 (2024)
- Overall balance (adjusted): -3.4 (2019), -13.4 (2020)
- Total government debt, of which: 60.0 (2019), 81.1 (2020), 72.7 (2021), 69.6 (2022), 68.1 (2023), 65.5 (2024), 62.6 (2025), 59.9 (2026)
- External debt: 42.5 (2019), 57.2 (2020), 51.3 (2021), 46.3 (2022), 42.4 (2023), 37.1 (2024), 32.3 (2025), 29.5 (2026)
- Monetary sector:
- Net foreign assets: -3.6 (2019), -28.3 (2020), -2.0 (2021), -1.9 (2022), -2.2 (2023), -1.8 (2024)
- Net domestic assets: 4.4 (2019), 9.6 (2020), 8.1 (2021), 6.3 (2022), 4.7 (2023)
- Credit to the private sector: 1.1 (2019), 4.5 (2020), 3.6 (2021), 3.5 (2022)
- Broad money: 8.9 (2019), 7.5 (2020), 6.0 (2021), 5.1 (2022), 3.8 (2023)
- External sector:
- Exports of goods: 38.7 (2019), 31.1 (2020), 34.2 (2021), 38.4 (2022), 39.2 (2023), 40.7 (2024), 41.9 (2025), 43.1 (2026)
- Oil and gas exports: 26.5 (2019), 19.6 (2020), 21.5 (2021), 24.5 (2022), 24.1 (2023), 24.2 (2024)
- Other exports: 12.2 (2019), 11.5 (2020), 12.7 (2021), 13.9 (2022), 15.1 (2023), 16.2 (2024), 17.5 (2025), 18.9 (2026)
- Imports of goods: -20.5 (2019), -18.3 (2020), -19.8 (2021), -21.5 (2022), -22.6 (2023), -23.8 (2024), -25.0 (2025), -26.5 (2026)
- Current account balance: -4.1 (2019), -6.3 (2020), -4.3 (2021), -3.9 (2022), -3.1 (2023), -3.0 (2024)
- Central Bank gross reserves (in months of next year's imports of goods and services): 8.2 (2019), 6.5 (2020), 5.8 (2021), 5.5 (2022), 5.2 (2023), 5.0 (2024)
- Total external debt: 82.2 (2019), 85.6 (2020), 85.4 (2021), 84.6 (2022), 82.1 (2023), 79.8 (2024), 79.3 (2025), 100.0 (2026), 130.1 (additional series), 117.2, 110.8, 106.4, 100.4, 95.2, 91.8 (series as presented)
Source: Oman: Staff Concluding Statement of an IMF Staff Visit, February 12, 2021.