MUSCAT, JULY 7 – The Omani government’s diversification efforts and the planned completion of major infrastructure projects are expected to gradually raise non-hydrocarbon growth to about four per cent over the medium term, according to a report by the International Monetary Fund (IMF). Non-hydrocarbon economic growth is estimated to have picked up modestly in 2017 to about 2 per cent, from 1.5 per cent in 2016, as higher confidence in the wake of the rebound in oil prices helped offset the impact from fiscal consolidation on economic activity, the multilateral global financial body said.
Its assessment came in a report following an Article IV consultation with Omani authorities on June 20, 2018. Preliminary budget execution data point to a significant improvement in the fiscal position last year as higher oil prices and spending restraint brought the overall deficit down to below 13 per cent of GDP, the report said. “The government is undertaking further reforms to raise non-hydrocarbon revenue, such as introducing value-added and excise taxes, and intends to continue with spending restraint. This would bring the deficit to around 4 per cent of GDP in the next two years,” it stated.
The banking sector won particular praise in the report. “The banking sector appears sound, with banks featuring high capitalisation, low non-performing loans, and strong liquidity buffers. Although private sector credit growth has somewhat moderated, and interest rates are likely to increase as US monetary policy normalisation continues, credit growth is expected to remain healthy,” the IMF report noted. The Executive Directors of IMF welcomed the authorities’ efforts to bolster the fiscal position and encouraged implementation of structural reforms to boost private sector led growth, increase economic diversification, create jobs and foster inclusive growth.
Directors encouraged the authorities to accelerate reforms to bolster fiscal and external sustainability, maintain confidence, and support the exchange rate peg. Deeper fiscal adjustment is critical to put public finances on a sustainable trajectory. Directors called for steadfast efforts to implement ongoing reforms, including the introduction of a VAT and excise taxes, under the planned timeline.
“Directors concurred that the exchange rate peg had delivered monetary policy credibility with low and stable inflation. They also noted that fiscal adjustment is key to ensure external sustainability over the long term,” the report said.
Directors commended the authorities for the soundness of the financial system and encouraged them to maintain robust banking sector regulation and supervision. Continued efforts are also required to identify and closely monitor any emerging pressures on asset quality and any potential build up in financial sector risks. Directors stressed the need to ensure that the prudential framework and financial sector buffers remain strong. They encouraged the central bank to strengthen its liquidity and crisis management and preparedness frameworks to further bolster resilience. Efforts to enhance the AML/CFT framework and its effective implementation are also important, it stressed.
Finally, the Executive Directors underlined the need for structural reforms to promote private sector development and productivity to enhance competitiveness, diversification, and job creation for nationals. They recommended addressing labour market inefficiencies by better aligning public sector wages and benefits with the private sector, making the labour market for nationals more flexible, and tackling skill mismatches through better education and on the job training.