Economy progressing towards higher growth, says SICO study

@kabeeryousef -

Oman's economy is in a transitory phase progressing towards higher growth, as it makes strides in achieving set targets in the 10th five-year development plan, according to a study conducted by SICO, a leading regional asset manager and investment bank.

The study prepared in consultation with the Ministry of Economy, and representatives from key bodies, further says that the government’s strong commitment to re-focusing expenditure on development, curtailing debt growth, and attracting investments by further opening the economy and encouraging FDI are all on the path to yield desired results.

"The year 2022 for Oman is a year of re-arranging the books, and can be best described as a year of transitioning towards stronger growth in the medium-term of 2023-2025," said Sumaya al Jazeeri, Assistant Vice President from SICO’s Investment Research.

"The recovery witnessed in the Omani economy, lowering debt to GDP, and focusing on Capex and investment spending are all promising and commendable," she adds.

The report titled 'Oman's Economic Developments in 2022' further suggests that the introduction of the VAT has positively contributed to revenues, and the income tax, if implemented as scheduled in 2024, is another step in fiscal revenue diversification. Yet, the extension of planned electricity and water subsidy reforms across a ten-year horizon rather than five, as indicated by the Ministry of Finance, could be a possible delay in the introduction of the income tax, potentially slowing down diversification away from oil and gas revenues. The planned electricity and water subsidy reforms were originally targeted for 2025.

The rate at which the economy picks up and investment spending becomes reflected in projects on the ground will set the growth momentum for Oman and show commitment to foreign investors.

The report further says that investment spending will be a key driver in sustaining the upward trajectory of real GDP growth, which has seen growth levels reach 3 per cent in 2021 and 2 per cent in 1Q22. According to official estimates, real GDP growth is projected to reach 5 per cent in 2022, which implies an expectation of much stronger growth in the remaining quarters. However, considering the banking sector showed a mere 1.2 per cent YTD growth in loans, while lending to the private sector showed marginal growth of 0.2 per cent as at 1H22, in addition to other indicators such as labour market metrics, the pace of recovery remains slower than projected.

The report assumes that official outlook for 2022 of real GDP growth reaching 5 per cent is optimistic, yet more likely achievable over the 2022-2023 period. However, there are challenges too. It continues to face challenges from upcoming debt maturities of nearly USD 12-13bn by 2025, inflationary pressures resulting in higher subsidy bills, such as food and oil products subsidies, slower return of expats, and modest lending growth to the private sector.