Credit By: ZAWYA
Oman’s economic recovery has been highlighted in a recent report by the International Monetary Fund (IMF), showcasing positive developments across various sectors. The report underscores the impact of structural reforms and policies in reviving employment growth, moderating inflation, reducing public sector debt, and securing upgrades of Oman’s sovereign credit ratings.
Economic Growth and Sectoral Performance
The IMF report indicates that Oman’s economic output grew by 4.7 percent in 2022, driven primarily by a strong expansion of the oil & gas sector. However, non-hydrocarbon growth slipped to 1.2 percent in 2022, mainly due to a contraction in the construction sector. Nonetheless, non-hydrocarbon growth rebounded to 2.7 percent in the first half of 2023, buoyed by recovering agriculture and construction activities, alongside a robust services sector.
Key Improvements in the Omani Economy
Elevated oil prices and fiscal discipline have led to a significant turnaround in Oman’s fiscal balance. The country transformed a deficit of 3.1 percent of GDP in 2021 into a surplus of 10.1 percent of GDP in 2022, supported by higher oil & gas revenues, increased tax yields, and lower expenditures.
Omani employment grew modestly by 3.6 percent in 2022, with overall employment returning to pre-pandemic trends, showing a 16.2 percent climb.
Average inflation increased to 2.8 percent in 2022, primarily driven by higher global food and energy prices. However, inflation receded to 1.2 percent during January- September 2023, aided by a stronger US dollar and a cap on fuel prices.
The Central Bank of Oman (CBO) has been gradually increasing its policy rate in alignment with the US Fed, raising the repo rate by 550 bps since 2022. However, credit to the economy has continued to increase, reflecting a low pass-through of the policy rate into domestic credit conditions.
Public Sector Debt Reduction
Central government debt as a share of GDP declined significantly from 61.3 percent in 2021 to 39.9 percent in 2022, following the deployment of surplus oil & gas revenues to prepay government debt. State-owned enterprises also reduced their debt to 29.9 percent of GDP in 2022, contributing to an increase in the government’s net financial assets-to-GDP ratio.
External Position Improvement
Oman’s current account reached its first surplus of 5.0 percent of GDP since 2014, with non-oil exports more than doubling from 2019 levels. Although CBO reserves declined, Oman still maintains substantial external buffers, including liquid foreign assets held by the Oman Investment Authority (OIA).
Banking Sector Resilience
The banking sector has demonstrated resilience, with profitability returning to prepandemic levels, and capital and liquidity ratios remaining well above regulatory requirements. Non-performing loans (NPLs) have remained contained, and banks have been unaffected by global banking turmoil, attributed to CBO’s prudent oversight and banks’ domestic-oriented business model.
The IMF report underscores the progress of Oman’s economic recovery, citing improvements across various indicators. With fiscal stability, employment growth, inflation control, debt reduction, and a resilient banking sector, Oman’s economic outlook appears positive, showcasing the effectiveness of policy measures and reforms in driving sustainable growth.
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