IMF Executive Board Concludes 2022 Article IV Consultation with Oman
IMF News, November 15, 2022
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- Published: November 15, 2022
Overview
- The Executive Board concluded the Article IV consultation with Oman and considered and endorsed the staff appraisal without a meeting.
- Strong vaccination efforts allowed relaxation of all social distancing restrictions and the economic recovery is gaining traction.
- Direct spillovers on the Omani economy from the war in Ukraine have been limited.
Economic outlook and projections
- Overall GDP growth:
- Rebounded from -3.2 percent in 2020 to 3.0 percent in 2021.
- Projected at 4.3 percent in 2022.
- Real hydrocarbon GDP growth projected at 8.5 percent in 2022.
- Real nonhydrocarbon GDP growth:
- 1.8 percent in 2020, 2.6 percent in 2021, 2.9 percent in 2022, and 3.4 percent in 2023.
- Average inflation:
- Expected to rise to 3 percent in 2022.
- Oil and gas:
- Total production of oil and gas (US$ billions): 27.1 (2019), 18.0 (2020), 24.3 (2021), 42.1 (2022), 37.0 (2023).
- Average crude oil export price (US$/barrel): 63.6 (2019), 46.0 (2020), 64.3 (2021), 95.0 (2022), 85.5 (2023).
- Crude oil production (in millions of barrels/day): 0.97 (2019), 0.95 (2020), 1.06 (2021), 1.13 (2022), 1.14 (2023).
Fiscal and external balances
- Fiscal performance:
- The overall central government balance improved by 12.8 percentage points of GDP to a deficit of 3.2 percent in 2021.
- Fiscal and external surpluses are expected in 2022 and over the medium term.
- Central government debt:
- Declined to 62.9 percent of GDP in 2021.
- Expected to decline to about 44 percent of GDP in 2022.
- Revenues and composition (percent of GDP, selected years):
- Revenue and grants: 29.6 (2019), 36.9 (2020), 34.1 (2021), 33.4 (2022), 32.4 (2023), 31.8 (2024).
- Hydrocarbon revenue: 25.8 (2019), 22.3 (2020), 26.6 (2021), 30.5 (2022), 26.8 (2023), 24.5 (2024).
- Nonhydrocarbon and grants: 8.1 (2019), 7.4 (2020), 7.3 (2021), 6.5 (2022), 6.6 (2023), 7.6 (2024).
- Balance of payments and reserves:
- Current account balance (percent of GDP): -4.6 (2019), -16.6 (2020), -5.0 (2021), 1.7 (2022), 1.2 (2023).
- Central Bank gross reserves (in months of next year's imports): 5.9 (2019), 4.9 (2020), 5.8 (2021).
- Exports of goods (percent of GDP): 38.7 (2019), 33.5 (2020), 44.6 (2021), 64.0 (2022), 59.3 (2023).
Financial sector and monetary policy
- Banking system:
- The banking system has weathered recent shocks relatively well; financial soundness indicators appear healthy.
- Private sector credit growth has remained subdued.
- Monetary stance and exchange rate:
- The exchange rate peg remains appropriate and has provided a credible monetary anchor.
- Official foreign reserves, fiscal prudence, and structural reforms would continue to reinforce the peg.
- Better coordination between fiscal and monetary authorities, improved liquidity management, and deeper financial markets would improve capacity for a more independent monetary policy.
- Recommended regulatory and supervisory actions:
- Continue close monitoring of bank asset quality and strengthen regulatory frameworks.
- Restore prudential rules to pre-pandemic levels.
- Enact the new Banking Law to align legislation with international best practices.
- Ensure banking system liquidity remains adequate while enhancing liquidity management framework and establishing the TSA.
- Progress in developing capital markets is welcome.
Risks, structural reforms, and policy recommendations
- Risks to the outlook:
- Upside risks: higher-than-expected hydrocarbon windfalls, accelerated implementation of structural reforms under Vision 2040, realization of investment projects from regional partners.
- Downside risks: uncertainty about the war in Ukraine and its impact on the global economy and oil prices, renewed flare-up of COVID-19 infections, tighter-than-expected global financial conditions, increased inflationary pressures from higher global food and energy prices, more persistent disruption in global supply chains, pressures to spend hydrocarbon windfalls, and climate-related events.
- Fiscal policy recommendations:
- Authorities remain committed to fiscal consolidation notwithstanding oil revenue windfalls and social pressures.
- Additional measures are needed to reinforce fiscal sustainability over the medium term and create space for social safety net reforms and higher capital expenditure.
- Efforts to strengthen tax administration and implement a PIT are welcome.
- The phased withdrawal of untargeted energy and water subsidies should be a priority, with intensive public outreach to sustain support for fiscal consolidation.
- Establish strong fiscal frameworks with clear objectives and a long-term anchor to support adoption of a fiscal rule.
- A fiscal rule based on the non-hydrocarbon structural primary balance could be appropriate.
- Developing a sovereign asset and liability management framework should be a priority.
- Structural and institutional reforms:
- Steadfast implementation of Vision 2040 reforms is paramount to secure more inclusive, diversified, and sustainable growth.
- Strengthening the social safety net would help facilitate labor market flexibility reforms.
- Advancing SOE reforms to promote competition, strengthen governance, and stimulate private sector participation should be prioritized.
- Worker skills need upgrading to facilitate digital economy transformation.
- Pressing ahead with addressing climate challenges should be a priority.
Key quantitative indicators (selected)
- Nominal GDP (US$ billions): 88.1 (2019), 74.0 (2020), 85.9 (2021), 108.9 (2022), 111.0 (2023).
- Nominal GDP (in billions of Omani rials): 33.9 (2019), 28.4 (2020), 33.0 (2021), 41.9 (2022), 42.7 (2023).
- Central government debt (percent of GDP): 52.5 (2019), 69.7 (2020), 62.9 (2021), 43.7 (2022), 42.5 (2023), 41.7 (2024).
- Gross capital formation (percent of GDP): 26.9 (2019), 28.3 (2020), 23.0 (2021), 23.2 (2022), 23.5 (2023).
- Gross national savings (percent of GDP): 22.4 (2019), 15.3 (2020), 27.3 (2021), 26.0 (2022), 25.5 (2023).
- Non-hydrocarbon structural primary balance (percent of non-hydrocarbon GDP): -36.3 (2019), -32.6 (2020), -34.1 (2021), -31.2 (2022).
Source: IMF Executive Board Concludes 2022 Article IV Consultation with Oman (Press Release No. 22/386), November 15, 2022.