## Oman: Staff Concluding Statement of the 2021 Article IV Mission _IMF News, July 6, 2021_ ## Source details **Canonical URL:** [Oman: Staff Concluding Statement of the 2021 Article IV Mission](https://www.imf.org/en/news/articles/2021/07/06/mcs070621-oman-staff-concluding-statement-of-the-2021-article-iv-mission) ## Other formats - [Markdown version](/en/news/articles/2021/07/06/mcs070621-oman-staff-concluding-statement-of-the-2021-article-iv-mission/index.md) - [Structured JSON version](/en/news/articles/2021/07/06/mcs070621-oman-staff-concluding-statement-of-the-2021-article-iv-mission/index.json) - [Bundle manifest](/en/news/articles/2021/07/06/mcs070621-oman-staff-concluding-statement-of-the-2021-article-iv-mission/bundle-manifest.json) ## Bibliographic details - Published: July 6, 2021 --- ### Economic Outlook - Containment measures and health support limited COVID-19 cases and fatalities; cautious reopening helped contain new cases since early 2021. - Real GDP contracted by 2.8 percent in 2020; non-hydrocarbon growth was -3.9 percent and hydrocarbon GDP had a shallower decline. - Projections: - Overall GDP is projected to grow around 2.5 percent in 2021. - About 3 percent average growth over the medium term. - Non-hydrocarbon GDP growth of 1.5 percent is projected for 2021. - Non-hydrocarbon growth increases gradually over the medium term, reaching 4 percent in 2026. - Inflation turned negative in 2020, expected to increase to 3 percent in 2021 given the introduction of VAT and recovery in aggregate demand, before declining to about 2.5 percent over the medium term. - Fiscal and external balances: - Fiscal deficit deteriorated sharply in 2020 to about 19.3 percent of GDP. - Fiscal balance projected to improve to -2.4 percent of GDP in 2021. - Current account rose to 13.7 percent of GDP in 2020; expected to decline to 0.6 percent of GDP over the medium term. - Key uncertainties and risks: - COVID-19 variants, oil price volatility, and potential social pressures from fiscal consolidation. - Upside risks: strong vaccine roll-out and stronger global rebound; benefits from strong fiscal consolidation and structural reforms. ### Near-Term Policies: Supporting Economic Recovery - Main near-term priority: combating the pandemic until recovery is entrenched, including vaccine rollout. - Authorities aim to vaccinate 70 percent of the targeted population by year-end. - Economic Stimulus Plan (adopted March 2021) provides and extends substantial support to affected sectors and strengthens the business environment. - Policy guidance: - Maintain pandemic-related support measures until recovery is firmly established; withdraw individual measures carefully and coordinately. - Explore strengthening insolvency and debt restructuring tools to facilitate resource reallocation. - With oil prices higher than budgeted, scope exists for additional temporary targeted support for affected households and businesses without jeopardizing medium-term consolidation. - Temporary social protection may help jobseekers not covered by the Job Security Scheme, given elevated female and youth unemployment rates. - Fiscal stance: - 2021 adjustment of 4.3 percent of GDP in the non-hydrocarbon structural primary balance, primarily reflecting: - 5 percent VAT introduced in April. - Lower wage bill primarily from mandatory retirement. - Reduction in water and electricity subsidies. - Modest cuts in capital spending. - Impact of consolidation mitigated by social spending and temporary reductions and waivers of taxes and fees. - Monetary/financial measures: - Banks remain well-capitalized and liquid despite a slight increase in non-performing loans ratio and a decline in profitability. - Credit risk is a concern; Central Bank of Oman should maintain forward-looking assessments of banks’ asset quality and ensure adequate capital buffers. - Extending loan moratoria should be data-dependent and increasingly targeted to distressed but viable borrowers. ### Fiscal Policy: Reinforcing Fiscal Sustainability - Steadfast implementation of the Medium-Term Fiscal Plan (MTFP) is essential to reduce fiscal vulnerabilities and put debt on a downward path. - MTFP targets elimination of the fiscal deficit over the medium term by boosting non-hydrocarbon revenue while keeping nominal fiscal expenditure broadly constant and improving efficiency and targeting. - Public communication and social safety net strengthening are essential to sustain public support for the MTFP and structural reforms. - Strengthening the medium-term fiscal framework: - A target for the non-hydrocarbon structural primary balance could serve as an appropriate fiscal anchor, supplemented by a floor on government net financial assets. - Expand fiscal risk analysis and sensitivity assessments to develop contingency plans for adverse shocks. - Authorities have requested IMF technical assistance to help strengthen the medium-term fiscal framework. - Public financial management and fiscal governance improvements: - Increase disclosures in quarterly fiscal reports (revenue, expenditure, financing). - Add a tax expenditure assessment to the budget to strengthen transparency over tax incentives. - Expand fiscal coverage beyond the budgetary central government to capture EDO and OIA activities and SOEs for a better picture of public sector sustainability. - Develop a sovereign asset liability management framework given eroding financial buffers and the growing role of SOEs. - Establishment of the Debt Management Committee to coordinate debt issuance and manage financial exposures is welcome. - Authorities have requested IMF technical assistance to develop a medium-term debt strategy. ### Monetary and Financial Policies: Safeguarding Financial Stability - The exchange rate peg remains an appropriate policy anchor, delivering low and stable inflation. - The MTFP and structural reforms are critical to ensure external sustainability and support the exchange rate peg. - Regulatory and supervisory priorities: - Strengthen the regulatory framework by grounding the Bank Resolution Framework (issued in 2019) in the Banking Law to provide legal certainty for effective resolution implementation. - Monitor risks related to lending to the commercial real estate sector, which has been negatively impacted by the pandemic. - Continue efforts to promote Fintech to enhance financial inclusion while containing risks. ### Structural Reforms: Managing the Transition toward Stronger Growth - Private sector competitiveness and productivity: - Policies to enhance productivity, labor market flexibility, promote investment, and improve the business climate are on the right track. - Carefully assess whether benefits of free trade zones outweigh the considerable tax exemptions granted. - Labor market reforms and measures: - Simplified multiple minimum wages into a single minimum wage of OMR 325/month. - Time-bound wage subsidy of OMR 200/month for first time Omani jobseekers to facilitate private sector employment of Omanis, initially expected to cover about 15,000 persons. - Relaxation of restrictions on job transfers for expatriates. - Job Security Fund—an unemployment benefit scheme—to facilitate worker reallocation between employers. - Ongoing efforts to update the labor law to support labor market flexibility. - Recommendations: increase female employment, ensure public sector wage growth does not outpace private sector, and implement plans to reduce the labor cost gap with caution. - SOE reform and governance: - OIA’s plan to enhance efficiency and governance of SOEs and privatize some SOEs is progressing. - Near-term priorities: publish audited financial statements, assess each entity’s business strategy and public policy role, mitigate intra-public sector financial exposures. - OIA and Capital Market Authority are developing a Code of Governance for SOEs to strengthen corporate governance and facilitate IPOs and transparency. - Green transition: - Authorities are reducing domestic electricity and water subsidies. - Plans to utilize abundant wind and solar energy resources to attract investors and contribute to growth and job creation. *Oman: Staff Concluding Statement of the 2021 Article IV Mission (July 6, 2021).* --- ## References - [Oman and the IMF](http://www.imf.org/external/country/OMN/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Mission Concluding Statements](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2021/07/06/mcs070621-oman-staff-concluding-statement-of-the-2021-article-iv-mission_