Oman exchange rate peg is appropriate: IMF

MUSCAT, NOV 19

The Omani currency’s exchange rate peg continues to serve as a suitable anchor of monetary policy in the Sultanate of Oman, helping also stabilize inflationary pressures, according to the International Monetary Fund (IMF).

The UN affiliated financial agency, in a recent report of its Article IV consultation with Oman, also commended efforts by the Omani government to institute fiscal reforms with a view to strengthening the country’s financial sector.

“The exchange rate peg remains appropriate,” said the IMF in its report. “The peg has provided a credible monetary anchor, helping to deliver low and stable inflation. Official foreign reserves, fiscal prudence, and structural reforms would continue to reinforce the peg.”

It noted however the need for better coordination between fiscal and monetary authorities, improved liquidity management, and deeper financial markets in improving the capacity for a more independent monetary policy.

For well over 35 years, the Omani rial has been pegged to the US dollar with an exchange rate peg that has remained unchanged at USD 2.6008 per RO. Depending on the day to day movements in the exchange rate of the US Dollar in relation to the currencies of other countries, the exchange rates of the RO also changes accordingly.

The Central Bank of Oman (CBO), which administers monetary policy in the country, has stressed that the fixed peg and associated stability of the exchange rate has contributed significantly to sustaining an atmosphere that is conducive to trade, investment and growth in Oman.

The IMF report also referenced steps initiated by the apex bank to strengthen the banking and financial sector. It said: “Financial system risks are low, but the CBO should continue its close monitoring of bank asset quality and its efforts to strengthen regulatory frameworks. Restoring prudential rules to pre-pandemic levels should be a priority. Enacting the new Banking Law would align the legislation with international best practices.”

The Washington DC-headquartered Fund also cited the government’s initiative to establish the Treasury Single Account (TSA) – a project launched by the Ministry of Finance to help streamline the handling of public finances.

When eventually implemented, the scheme will cover as many as 57 government ministries and departments, effectively elevating the Sultanate of Oman into the ranks of modern economies that have embraced the TSA model to ensure prudence and probity in the management of financial resources.

“Careful coordination is needed to ensure that banking system liquidity remains adequate as plans to enhance the liquidity management framework and establish the TSA are implemented. Progress in developing capital markets is welcome,” the report further stated.

Significantly, there was praise for the Omani government’s commitment to fiscal consolidation. “Establishing strong fiscal frameworks with clear objectives and a long-term anchor would help achieve fiscal sustainability,” the IMF noted. “Ongoing reforms to improve public financial management and transparency are welcome and developing a sovereign asset and liability management framework should be a priority.”

Chairing a meeting of the Council of Ministers on November 17, 2022, His Majesty Haitham bin Tarik issued Royal Directives for the launch of the National Fiscal Sustainability and Financial Development Programme – an initiative designed to make the financial sector a basic enabler for the growth of investments, as well as the economy. The three-year programme begins from January next year.