IMF Executive Board Concludes 2021 Article IV Consultation with Oman

September 12, 2021

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Oman.

The Omani economy was hit by a dual shock of the pandemic and a collapse in oil prices in 2020. Overall and non-hydrocarbon GDP are estimated to have contracted by 2.8 percent, and 3.9 percent, respectively. Labor market adjustment was facilitated by temporary wage cuts and a reduction in expatriate employment. The economy is set to recover in 2021, with non-hydrocarbon GDP growth of 1.5 percent as vaccine rollout gradually restores domestic activity along with the recovery of external demand. Oil production is projected to increase after the current OPEC+ agreement expires in April 2022. Inflation has been subdued.

The fiscal deficit and government debt rose sharply in 2020 but are projected to improve considerably over the medium term with the implementation of the authorities’ Medium-Term Fiscal Balance Plan. The fiscal deficit widened to 19.3 percent of GDP in 2020, partly reflecting non-policy factors (notably the contraction in nominal GDP). It is projected to decline to -2.4 percent in 2021 and a surplus in 2022. Central government debt rose to 81.2 percent of GDP, with financing needs covered by domestic and external borrowing and asset drawdown, but is expected to decline sharply over the medium term. Fiscal consolidation and higher oil prices are projected to narrow the current account deficit to -6.2 percent in 2021 and -0.6 percent in 2026.

There are substantial uncertainties around the outlook, with downside risks dominating. On the downside, COVID-19 variants would prolong the impact of the pandemic. Tighter global financial conditions could worsen the fiscal and external positions. Public debt remains vulnerable to risks, particularly from oil market developments and shocks to GDP growth, the exchange rate, primary balance, and interest rates. A substantial decline in oil prices would increase gross financing needs and have negative spillovers in the non-hydrocarbon sector. On the upside, a strong roll-out of vaccination, higher oil prices, and continued implementation of structural reforms would considerably improve the outlook.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the Omani authorities’ swift and well-coordinated policy actions to address the health and economic effects of the COVID-19 pandemic. Looking ahead, Directors emphasized that macroeconomic policies should remain supportive until the recovery is fully entrenched and underscored providing additional time-bound and targeted policy measures for hard-hit sectors and households if needed.

Incomplete adjustment to the lower oil prices since 2015, and the twin shocks of the pandemic and the collapse in oil prices in 2020 amplified fiscal and external vulnerabilities. In this context, Directors welcomed the authorities’ strong commitment to implementing the Medium-Term Fiscal Balance Program to contain expenditure, reduce the dependency of revenue on hydrocarbon prices, and put debt on a firm downward path. They encouraged the authorities to sustain outreach to bolster public support for reforms. Establishing a clear fiscal anchor would help achieve fiscal consolidation. Directors supported strengthening overall public sector governance and called for expanding fiscal coverage beyond the budgetary central government and providing more detailed budget and debt data. A robust sovereign asset and liability management framework is essential to identify and mitigate risk exposures and secure the sovereign balance sheet. Directors welcomed ongoing efforts to strengthen the capacity of the debt management office.

Directors agreed that the exchange rate peg remains an appropriate policy anchor for Oman, helping to deliver low and stable inflation. As regards the financial sector, Directors welcomed the continued resilience of the sector and ongoing capital market reforms. At the same time, while the banking system remains sound, continued vigilance is required to contain financial stability risks given the substantial uncertainties in the outlook. Directors also called for a careful management of the sovereign-bank nexus over time to support banking system resilience. They welcomed the AML/CFT mutual evaluation in 2021 and Oman’s ongoing strengthening of the framework.

Directors welcomed recent progress in structural reforms aiming at boosting non-hydrocarbon sector growth and supporting external sustainability. Priority should be given to improving flexibility in the labor market, promoting employment in the private sector, and further encouraging female labor participation. Directors welcomed efforts to strengthen the social safety net and commended the authorities for accelerating SOE reforms to enhance competition and efficiently manage public resources.

Directors welcomed the authorities’ decision to publish the staff report for the consultation.

It is expected that the next Article IV consultation with Oman will be held on the standard 12-month cycle.


Table 1. Oman: Selected Economic Indicators, 2016-26

Prel.

Proj.

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Oil and gas sector

Total production of oil and gas (US$ billions)

16.0

18.7

27.7

26.6

17.8

23.6

27.5

26.9

26.4

26.1

26.0

Average crude oil export price (US$/barrel)

40.1

51.3

69.7

63.6

46.0

60.4

63.0

59.8

57.7

56.4

55.7

Crude oil production (in millions of barrels/day)

1.00

0.97

0.98

0.97

0.95

0.96

1.01

1.07

1.10

1.14

1.14

National accounts

(Annual percentage change, unless otherwise indicated)

Nominal GDP (US$ billions)

65.5

70.6

79.8

76.3

63.4

77.7

82.3

84.3

87.0

90.0

93.9

Nominal GDP (in billions of Omani rials)

25.2

27.1

30.7

29.3

24.4

29.9

31.7

32.4

33.4

34.6

36.1

Real GDP

4.9

0.3

0.9

-0.8

-2.8

2.5

2.9

4.2

2.9

3.3

2.6

Real hydrocarbon GDP 1/

3.4

-2.1

4.0

1.4

-1.7

3.5

3.6

6.0

2.8

3.3

1.2

Real nonhydrocarbon GDP

6.2

2.4

-1.6

-2.8

-3.9

1.5

2.3

2.4

3.0

3.4

4.0

Consumer prices (average)

1.1

1.6

0.9

0.1

-0.9

3.0

2.7

2.5

2.5

2.4

2.4

GDP Deflator

-9.4

7.4

12.0

-3.5

-14.6

19.7

2.9

-1.7

0.2

0.2

1.6

Investment and saving

(Percent of GDP)

Gross capital formation

28.9

27.5

24.4

20.5

19.0

20.5

21.2

21.5

21.7

22.0

22.1

Public

15.6

13.7

13.4

13.1

13.6

11.0

10.9

10.9

10.9

10.9

10.8

Private

13.3

13.8

11.0

7.4

5.4

9.5

10.3

10.6

10.8

11.1

11.3

Gross national savings

9.7

12.0

19.0

14.8

5.3

14.3

19.5

20.4

20.9

21.2

21.5

Public

-7.5

2.6

7.4

10.2

-0.7

6.8

9.9

9.8

9.7

9.1

8.9

Private

17.3

9.3

11.5

4.6

6.1

7.5

9.7

10.6

11.2

12.1

12.6

Central government finances

(Percent of GDP)

Revenue and grants

28.7

33.2

36.2

39.2

34.6

32.9

35.3

34.8

34.6

33.7

33.1

Hydrocarbon

21.1

23.3

29.6

29.8

26.0

23.3

25.2

24.3

23.6

22.6

21.9

Nonhydrocarbon and grants

7.6

9.9

6.6

9.4

8.6

9.6

10.1

10.4

11.0

11.1

11.1

Expenditure

51.2

45.2

44.0

44.2

53.5

35.4

34.4

33.4

32.8

31.9

30.8

Current

39.6

35.4

34.6

35.7

43.3

32.4

31.5

30.5

30.0

29.1

28.0

Capital

11.6

9.7

9.4

8.5

9.9

3.0

2.9

2.9

2.9

2.9

2.8

Overall balance (Net lending/borrowing)

-24.1

-12.6

-8.4

-6.0

-19.3

-2.4

0.9

1.4

1.8

1.8

2.3

Overall balance (adjusted) 2/

-16.5

-6.5

-1.7

0.0

-12.1

-2.4

0.9

1.4

1.8

1.8

2.3

Non-hydrocarbon primary balance
(% of non-hydrocarbon GDP)

-54.1

-46.2

-48.4

-46.7

-47.8

-39.1

-36.1

-33.3

-30.8

-28.7

-26.7

Total government debt, of which:

33.7

45.9

51.3

60.5

81.2

70.7

64.5

60.5

56.3

51.9

46.9

External debt

20.5

32.7

38.4

45.4

60.2

51.0

43.0

37.7

32.4

27.9

26.4

Monetary sector

(Annual percentage change, unless otherwise indicated)

Net foreign assets

-0.9

-5.4

18.9

-3.6

-28.3

-1.1

0.0

1.7

5.8

6.7

6.4

Net domestic assets

3.0

8.2

4.4

4.4

23.2

6.5

7.3

6.4

5.6

4.6

1.0

Credit to the private sector

10.1

6.5

4.9

2.8

1.1

2.5

3.6

4.4

4.7

4.9

4.9

Broad money

1.8

4.2

8.3

2.0

8.9

5.1

6.0

5.6

5.6

4.9

1.9

External sector

(In billions of U.S. dollars, unless otherwise indicated)

Exports of goods

27.5

32.9

41.7

38.7

30.5

37.5

42.4

42.4

42.6

43.3

44.3

Oil and gas

16.0

19.2

27.3

26.5

18.2

24.7

29.1

28.3

27.7

27.4

27.3

Other

11.6

13.7

14.5

12.2

12.3

12.8

13.3

14.1

14.9

15.9

17.0

Imports of goods

-21.3

-24.1

-23.6

-20.5

-18.9

-19.9

-21.3

-22.2

-23.3

-24.4

-25.4

Current account balance

-12.5

-11.0

-4.3

-4.2

-8.7

-4.8

-1.4

-0.9

-0.7

-0.7

-0.6

Percent of GDP

-19.1

-15.6

-5.4

-5.5

-13.7

-6.2

-1.7

-1.1

-0.8

-0.8

-0.6

Central Bank gross reserves

20.3

16.1

17.4

16.7

15.0

15.8

16.0

16.4

17.2

18.1

19.1

In months of next year's imports of goods and services

7.0

5.5

6.4

7.3

6.3

5.9

5.7

5.6

5.6

5.6

5.6

Total external debt

41.9

58.2

66.7

72.0

72.7

78.6

78.2

78.3

78.9

80.0

79.9

Percent of GDP

63.9

82.5

83.6

94.3

114.7

101.1

95.0

92.9

90.8

88.9

85.0

Memorandum Items:

Non-hydrocarbon structural primary balance 3/

-31.5

-28.3

-30.5

-29.1

-25.6

-21.3

-19.8

-18.7

-17.7

-16.9

-16.2

Non-hydrocarbon structural primary balance (percent of non-hydrocarbon GDP) 3/

-53.5

-47.4

-48.5

-46.7

-46.4

-40.0

-37.8

-35.2

-33.0

-31.2

-29.7

Real effective exchange rate (2010 = 100)

107.7

107.7

105.6

106.7

105.1

…

…

…

…

…

…

Exchange rate (rial per dollar; period average)

0.38

0.38

0.38

0.38

0.38

…

…

…

…

…

…

Sources: Omani authorities; and IMF staff estimates and projections.

1/ Includes crude oil, refining, natural gas, and LNG production.

2/ Data prior to 2021 were adjusted by taking out expenditures on gas and oil that were hived off to Energy Development Oman in 2021.

3/ Adjusted by the economic cycle.


[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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