Oil recovery, export diversification to slash Oman’s 2021 deficit: WB

UPBEAT OUTLOOK: Rebounding oil sector coupled with non-oil exports set to shrink current account deficit to 5 per cent of GDP in 2021: World Bank update

The World Bank has projected a gradual rebound in the Omani economy, propelled in part by higher oil prices, rising non-oil exports, accelerating vaccine coverage, and fiscal consolidation supported by reforms.

The positive outlook – the latest in a flurry of upbeat economic assessments provided by leading international institutions – validates far-reaching initiatives and reforms enacted by the Omani government over the past two years to help return the national economy, derailed by the downturn and pandemic, back on track for growth.

“The economy is expected to recover gradually after a difficult 2020,” said the Washington DC-headquartered global financial institution.

“Oil and non-oil growth are projected to rebound as oil production increases and widespread vaccine distribution boosts domestic activity. Fiscal and external deficits are projected to swing into surplus driven by the oil market recovery and the fiscal adjustment, putting the debt on a downward path,” it added in its latest update of GCC economies published late last week.

A rebounding oil sector coupled with diversifying non-oil exports is projected to shrink the current account deficit to 5 per cent of GDP in 2021, according the World Bank report.

This outcome, it noted, will help reverse the nearly 14 per cent of GDP deficit observed in 2020.

“The current account balance will significantly improve in 2021-23 driven by the diversification efforts, but to remain in negative territory given large import inputs. Following a $1.7 billion decline in 2020, gross foreign reserves are estimated to remain stable at $15 billion (over 5 months of imports) in 2021 and beyond supported by more favourable terms of trade,” it stated.

The World Bank update envisions a significant role for the oil sector in spurring the Sultanate’s economic recovery. “The oil sector will remain the driving force of the economy, which is projected to grow by 3.5 per cent in 2021 and accelerate to 6 per cent by 2023, driven by higher oil output,” the report said.

The non-oil economy, on the other hand, is expected to post a modest recovery of 1.8 per cent in 2021 before picking up pace to reach an average of 2.5 per cent by 2022-23, spurred by the resumption of tourism activity, the global body said. Inflation is projected to pick up to 3 per cent in 2021, buoyed by growth in domestic demand and introduction of VAT, it pointed out.

Part of the turnaround is credited to the Omani government’s Medium Term Fiscal Balance Plan (MTFP) spanning the 2020 – 2024 period, the report said. The Plan enshrines a number of fiscal adjustment reforms aimed at, among other goals, boosting non-oil revenues, rationalizing expenditure and reining in public debt. The World Bank, however, acknowledged challenges in implementing some of the initiatives, as was evident in the proposed rollback of electricity subsidies.

“The key challenge is to translate the government reforms plan into concrete and credible actions to ensure inclusive growth,” the report commented.

Importantly, the Work Bank update broadly accords with a similarly favourable outlook issued by the International Monetary Fund (IMF) in a report following its Article IV consultations with Oman’s authorities last month.

The world body commended the wide spectrum of initiatives rolled out by the government to help mitigate the severe health, economic and social impacts of the crisis.

More recently, S&P Global Ratings – the largest of the Big Three international ratings agencies, revised the outlook on Oman to positive from stable. It also affirmed its ‘B+/B’ long- and short-term foreign and local currency sovereign credit ratings.