Selected Issues Papers

Since oil was discovered in the 1960s, Oman’s economy and living standards have improved significantly. Yet, it has also created a vulnerable economic structure, with economic growth and external and fiscal balances being highly sensitive to oil price swings. While current diversification efforts have laid important groundwork, further progress is needed to ensure economic resilience to oil price volatility. Building a competitive nonhydrocarbon export sector is essential, as nonhydrocarbon output consists primarily of non-tradables, particularly of low-added value sectors requiring low-skilled labor, with limited productivity gains, foreign currency receipts, and employment potential. Accelerating structural reforms alongside well-targeted state support will be key to enhance product sophistication and deepen export diversification beyond oil and gas. In particular, our empirical analysis indicates that improvements in government effectiveness and logistics performance could significantly raise nonhydrocarbon exports.