Oman’s economic recovery has progressed: IMF

MUSCAT: Oman’s economic recovery continues to be broad-based, sustained by impact-driven structural reforms and policies that have yielded positive results in, among other areas, reviving employment growth, moderating inflation, paring public sector debt, and securing upgrades of its sovereign credit ratings.

According to the latest report of the International Monetary Fund (IMF), economic output grew by 4.7 per cent in 2022, up from 3.1 per cent a year earlier, driven primarily by a strong expansion of the oil & gas sector.

Non-hydrocarbon growth, however, slipped to 1.2 per cent in 2022 (down from 1.9 per cent in 2021), weighed down largely by a contraction in the construction sector.

However, non-hydrocarbon growth has rebounded to 2.7 per cent in H1 2023, buoyed by recovering agriculture and construction activities and a robust services sector. Real GDP growth moderated to 2.1 per cent in H1 2023, which is attributable to a voluntary production cut of 40,000 bpd that Oman implemented in line with commitments to the OPEC Plus alliance.

The Observer looks at some of the pivotal improvements in the Omani economy as cited by the Fund:

Fiscal balance: Elevated oil prices and fiscal discipline have helped turn around years of fiscal deficit into a large surplus, according to the IMF report.

From a deficit of 3.1 per cent of GDP in 2021, it was transformed into a surplus of 10.1 per cent of GDP in 2022, underpinned by higher oil & gas revenues, larger tax yields, and lower expenditures.

Rising employment: Omani employment grew at a modest 3.6 per cent in 2022, although overall employ climbed by 16.2 per cent to return to prepandemic trends.

Inflation contained: Average inflation picked up to 2.8 per cent in 2022 from 1.5 per cent in 2021 on the back of higher global food and energy prices in the wake of the Ukraine War.

Helping contain inflation were a stronger US dollar and a cap on fuel prices. Inflation receded to 1.2 per cent (y-o-y) during January-September 2023, primarily reflecting lower transport and food inflation, according to the IMF.

Repo rates: In line with longstanding practice, the Central Bank of Oman (CBO) continued to increase its policy rate in lockstep with the US Fed. The repo rate has been raised by 550 bps since 2022.

Nevertheless, credit to the economy increased by 4.3 per cent in 2022 and 6.0 per cent by end-September 2023 (from 4.1 per cent in 2021), reflecting a low pass-through of the policy rate into domestic credit conditions.

Falling public sector debt: Central government debt as a share of GDP declined significantly from 61.3 per cent in 2021 to 39.9 per cent in 2022, following a decision by authorities to deploy surplus oil & gas revenues to prepay government debt.

At the same time, state-owned enterprises slashed their debt to 29.9 per cent of GDP in 2022, down from 40.7 per cent in 2021 on the back of improved performance, asset divestments, and deleveraging initiatives overseen by Oman Investment Authority (OIA). In the upshot, the government's net financial assets-to-GDP ratio increased considerably from –24.9 per cent in 2021 to –10.3 per cent in 2022, the Fund noted.

Improving external position: The current account reached its first surplus of 5.0 per cent of GDP since 2014, said the IMF. Non-oil exports more than doubled from their 2019 levels and represented about one-third of total exports in 2022. CBO reserves, however, declined to $17.6 billion following large debt repayments by the public sector. Oman still holds substantial external buffers when also accounting for OIA’s liquid foreign assets, the Fund said.

Resilient banking sector: Banking sector profitability has returned to prepandemic levels with capital and liquidity ratios remaining well above regulatory requirements.

NPLs remained contained at 4.4 per cent in June 2023, with loan-loss provisioning around 69 per cent. “Banks were not affected by the global banking turmoil in early 2023 due to CBO’s prudent oversight and banks’ domestic oriented business model. On aggregate, banks' foreign liabilities represented around 10 per cent of total liabilities at end-June 2023, with the net FX open position to capital ratio around 13 per cent,” the report stated.