Oman to post annual fiscal surpluses over medium term: IMF

Optimistic outlook: Public debt to slide to 45pc of GDP in 2022, down from 63pc of GDP in 2021, says IMF in latest observation

A new report by the International Monetary Fund (IMF) is upbeat about Oman’s fiscal and economic outlook over the medium term.

A statement issued on Friday by staff of the Washington DC-based international financial institution credits the Omani government’s structural reform and fiscal policies, among other factors, for sustaining the country’s nascent post-pandemic recovery.

Senior IMF Economist Daniel Kanda, who led the IMF team on a recent visit to the Sultanate of Oman, also assessed the Omani economy to be “strengthening”, with domestic inflation having being contained so far.

Summing up the performance of the Omani economy to date, Kanda stated: “Real GDP grew by 3 per cent in 2021, largely driven by the buoyant hydrocarbon sector. The economy is projected to grow by about 4.5 per cent in 2022, benefiting from increased hydrocarbon production and continued recovery of non-hydrocarbon activities. Inflation turned positive to 1.5 per cent in 2021 and is projected to increase to 3.7 per cent in 2022, given rebounding economic activity and rising global inflationary pressures.”

During its visit, spanning the June 5 – 12, 2022 period, the IMF team discussed “economic developments, the outlook, and the country’s policy priorities” with Omani authorities.

There is particular praise for the government’s comprehensive Covid-19 mitigation policies, supplemented by its stimulus measures, that enabled the country’s recovery from the pandemic. “The authorities undertook substantial vaccination efforts and policy actions to mitigate the fallout from the Covid-19 pandemic and foster the recovery,” the IMF statement said. “Nearly all persons 12 years and older had been at least partially vaccinated and about 90 per cent were fully vaccinated as of end-May 2022. With declining infections, all Covid-19 related restrictions have been removed. Targeted fiscal, monetary, and financial measures provided relief to households, firms, and banks.”

While acknowledging the role of high oil prices in shoring up Oman’s fiscals, the Fund also lauds the Omani government’s fiscal consolidation policies for the country’s improved fiscal and external positions.

The fiscal balance, according to the IMF, is anticipated to balloon to a surplus equivalent to 5.5 per cent of the GDP in 2022. Additionally, surpluses are expected to persist over the medium term as a result of higher oil prices and continued consolidation envisaged per the government’s Medium-Term Fiscal Plan (MTFP).

At the same time, central government debt is expected to slide to about to 45 per cent of GDP in 2022, down from a sizable 63 per cent of GDP in 2021, the report said. “Buoyed by oil exports, the current account balance is projected to improve to a surplus of 6.8 per cent of GDP in 2022. International reserves held at the CBO increased to $19.7 billion (5.2 months of prospective imports) in 2021,” the Fund stated.

There is also praise for the banking sector, which remains well-capitalised and liquid, while benefiting from the strong buffers before entering the crisis. The Fund attributed the sector’s performance to “prudent oversight” on the part of the Central Bank of Oman (CBO).

While the IMF is positive overall in its assessment of Oman’s economic outlook over the short term, it however cautioned against potential downside and upside risks stemming largely from global developments.

“Downside risks stem particularly from uncertainty about the war in Ukraine and its impact on the global economy, a renewed flare-up of Covid-19 infections, tighter-than-expected global financial conditions, increased inflationary pressures from higher global food and energy prices, more persistent disruption in global supply chains, and pressures to spend the hydrocarbon windfall,” the Fund warned.

“Upside risks to the outlook could come from higher-than-expected hydrocarbon windfall and accelerated implementation of structural reforms under Vision 2040. In this context the IMF team welcomes the authorities’ continued strong commitment to fiscal consolidation, under the MTFP, and structural reforms to reinforce fiscal and external sustainability,” Senior Economist Kanda added in his statement.