MUSCAT: The latest Economic Insights: Middle East report for the third quarter of 2021, from Oxford Economics, forecasts a gradual recovery for Oman’s economy, following a period of on-and-off Covid-19 restrictions. Non-oil sector activity and rising oil output should result in GDP growth of 2.1 per cent for the Sultanate, following an estimated contraction of 5.8 per cent in 2020.
The report, commissioned by ICAEW, states that the restrictions aimed at limiting the spread of Covid-19 have weighed heavily on Oman’s domestic recovery and tourism sector since the onset of the pandemic in 2020. This was reinforced by weak credit growth and concerns about job security and income, reflected in recent protests, as well as higher inflation following the introduction of VAT in April.
An increase in vaccination rates and the expansion of Oman’s vaccination drive —albeit lagging behind its GCC peers, with around a third of the population fully vaccinated so far, compared to 80 per cent in the UAE — have facilitated the lifting of restrictions, leading to the economy opening up. Vaccination is now mandatory in many settings across the country such as hypermarkets, commercial establishments, coffee shops and restaurants, to help contain the spread of the virus.
Strict restrictions on inbound travel have stifled Oman’s tourism sector, which plays an essential role in the country’s non-oil economy. However, in September Oman re-opened its borders to fully vaccinated tourists, giving an encouraging outlook for tourism, even as mandatory quarantine remains in place. Entertainment and hosting venues nationwide have also stepped up efforts to capture domestic audiences, driving occupancy above 2020 levels.
Overall, ICAEW’s report forecasts non-oil GDP growth of 2.4 per cent in 2021 and 3.1 per cent in 2022 for Oman’s non-oil sector, which is expected to return to its pre-pandemic levels in 2023.
Michael Armstrong, ICAEW Regional Director for the Middle East, Africa and South Asia, said: “While the non-oil sector gradually picks up and Oman’s economy reopens to foreigners, weak internal demand conditions continue to affect employment opportunities for nationals. Efforts are under way to create more public sector positions and replace foreign workers with Omani citizens, but a full recovery in the labour market will take time. New wage subsidies, announced in response to recent protests and offered to private companies for new local hires, should offer some support in the near term and encourage stronger domestic spending.”
Scott Livermore, ICAEW Economic Adviser and Chief Economist at Oxford Economics, added: “Oman’s inward policy turn means locals will take priority over foreign workers when companies are hiring, but Omani nationals still fear economic uncertainty will continue to affect job recovery. Oman authorities must continue to prioritise creating more jobs and training opportunities, as well as tackle domestic challenges, including fiscal weaknesses, and focusing policy on increased investment.”
According the report, Oman’s oil sector is gradually recovering as Opec+ cuts are tapered, with output rising by up to 1.2 per cent this year and next. Gas production is also on the rise as daily production at the key fields of Ghazeer and Khazzan see an increase to 1.5 bn cubic feet from 1 bn, further aiding overall GDP recovery.
Higher oil output combined with the improved outlook for oil prices is boosting fiscal revenues, as hydrocarbons account for around 70 per cent of total government revenue. Meanwhile, VAT proceeds are expected to boost non-oil receipts by approximately RO 300m ($0.8 bn) in 2021. Oman authorities also continue to cut spending to reduce funding needs. However, most of these improvements stem from removal of outlays related to Petroleum Development Oman (PDO), which are now borne by the recently-established energy company, Energy Development Oman (EDO).
