IMF Executive Board Concludes 2021 Article IV Consultation with Oman

IMF News, September 12, 2021

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The Omani economy was hit by a dual shock of the pandemic and a collapse in oil prices in 2020.
Overall GDP is estimated to have contracted by 2.8 percent in 2020.
Non-hydrocarbon GDP is estimated to have contracted by 3.9 percent in 2020.
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 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 widened to 19.3 percent of GDP in 2020, partly reflecting non-policy factors (notably the contraction in nominal GDP).
The fiscal deficit is projected to decline to -2.4 percent in 2021 and to register a surplus in 2022.
Central government debt rose to 81.2 percent of GDP in 2020.
Financing needs in 2020 were covered by domestic and external borrowing and asset drawdown.
Debt is expected to decline sharply over the medium term with implementation of the authorities’ Medium-Term Fiscal Balance Plan.
The Medium-Term Fiscal Balance Plan aims to contain expenditure, reduce dependency of revenue on hydrocarbon prices, and put debt on a downward path.

Key fiscal indicators (selected, exact values from table)

Nominal GDP (US$ billions): 63.4 (2020), 77.7 (2021 projected), 82.3 (2022 projected)
Nominal GDP (in billions of Omani rials): 24.4 (2020), 29.9 (2021 projected), 31.7 (2022 projected)
Overall balance (Net lending/borrowing): -19.3 (2020), -2.4 (2021 projected), 1.8 (2022 projected)
Total government debt: 81.2 (2020), 70.7 (2021 projected), 64.5 (2022 projected)
Revenue and grants (percent of GDP): 32.9 (2020), 35.3 (2021 projected), 34.8 (2022 projected)
Expenditure (percent of GDP): 53.5 (2020), 35.4 (2021 projected), 34.4 (2022 projected)

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.
Central Bank gross reserves (US$ billions): 15.0 (2020), 15.8 (2021 projected), 16.4 (2022 projected), 17.2 (2023 projected), 18.1 (2024 projected), 19.1 (2025 projected)
Central Bank gross reserves in months of next year's imports of goods and services: 5.7 (2020)
Exports of goods (US$ billions): 42.6 (2020), 44.3 (2021 projected)
Oil and gas exports (US$ billions): 24.7 (2020), 28.3 (2021 projected)
Total external debt (percent of GDP): 72.7 (2020), 78.6 (2021 projected), 78.2 (2022 projected), 78.3 (2023 projected), 78.9 (2024 projected), 80.0 (2025 projected)

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

Selected monetary statistics (exact values from table)

Net foreign assets: -1.1 (2020), 1.7 (2021 projected), 5.8 (2022 projected), 6.7 (2023 projected), 6.4 (2024 projected)
Net domestic assets: 7.3 (2020), 5.6 (2021 projected), 1.0 (2022 projected)
Broad money: 1.9 (2020)

Substantial uncertainties around the outlook, with downside risks dominating.
Downside risks include:
- COVID-19 variants prolonging the impact of the pandemic.
- Tighter global financial conditions worsening fiscal and external positions.
- Public debt vulnerability to shocks from oil market developments and shocks to GDP growth, the exchange rate, primary balance, and interest rates.
- A substantial decline in oil prices increasing gross financing needs and generating negative spillovers in the non-hydrocarbon sector.
Upside factors include:
- Strong roll-out of vaccination.
- Higher oil prices.
- Continued implementation of structural reforms.

Directors welcomed recent progress in structural reforms aiming at boosting non-hydrocarbon sector growth and supporting external sustainability.
Priority reforms recommended:
- Improve flexibility in the labor market.
- Promote employment in the private sector.
- Further encourage female labor participation.
Directors welcomed efforts to strengthen the social safety net.
Directors commended the authorities for accelerating SOE reforms to enhance competition and efficiently manage public resources.

Executive Directors commended the Omani authorities’ swift and well-coordinated policy actions to address the health and economic effects of the COVID-19 pandemic.
Directors emphasized that macroeconomic policies should remain supportive until the recovery is fully entrenched and supported providing additional time-bound and targeted policy measures for hard-hit sectors and households if needed.
Directors welcomed the authorities’ strong commitment to implementing the Medium-Term Fiscal Balance Program and encouraged sustained outreach to bolster public support for reforms.
Governance and transparency recommendations:
- Establish a clear fiscal anchor to help achieve fiscal consolidation.
- Strengthen overall public sector governance.
- Expand fiscal coverage beyond the budgetary central government and provide more detailed budget and debt data.
- Develop a robust sovereign asset and liability management framework to identify and mitigate risk exposures and secure the sovereign balance sheet.
- Strengthen the capacity of the debt management office.

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.

Source: IMF Press Release No. 21/259 — IMF Executive Board Concludes 2021 Article IV Consultation with Oman.