Oman’s next test: How credit grows, not how much

MUSCAT, JAN 19

The International Monetary Fund, in its Oman Article IV consultation released in mid-January 2026, says the Sultanate of Oman’s next reform test is not whether credit grows, but how it grows, where it flows, why it is priced the way it is, when the financial system must prove its resilience under a softer oil cycle and how policy can support Oman Vision 2040 without weakening stability in Muscat and across the economy.

The IMF’s starting point is broadly reassuring. It estimates Oman’s economy grew by 1.6% in 2024 and accelerated to 2.3% year-on-year in the first half of 2025, driven by nonhydrocarbon activity, while inflation remained low at 0.9% in January–October 2025 after 0.6% in 2024. The Fund also estimates the overall fiscal balance stayed in surplus at 0.7% of GDP in 2025 and that central government debt declined to 36.1% of GDP by September 2025, even as the external picture softened, with the current account moving to a deficit of 1.1% of GDP in 2025 on weaker oil prices.

For a business audience, however, the IMF’s most valuable contribution is not the macro snapshot. It is the emphasis on the “operating system” behind the headline results: the institutions and incentives that determine whether firms can access finance consistently, whether banks price risk properly and whether liquidity conditions remain predictable under Oman’s exchange-rate peg. The Fund’s message is that resilience is built less by one good year and more by the rules and tools that prevent boom-bust credit cycles.

The IMF says banks are sound, with ample capital and liquidity buffers and robust profitability, a conclusion reinforced through the Financial Sector Assessment Programme work referenced in the consultation. Yet the report also signals discomfort with a common policy temptation in periods of transition: pushing financial institutions to accelerate credit expansion in support of diversification while allowing risk governance to lag behind. The IMF Executive Board underlines that the Central Bank of Oman’s expanded development mandate should remain anchored in the objectives of price and financial stability.

That warning is not abstract. In practice, it is about the incentives that shape lending decisions. If banks interpret development priorities as permission to underprice risk, relax underwriting, or lean too heavily into sectors that have not yet built robust cashflow histories, asset-quality problems tend to emerge later, often when liquidity tightens and the cost of funding rises. For SMEs, contractors and firms in newer non-oil segments, the danger is that credit looks abundant during the upturn but becomes scarce just as receivables rise and working-capital needs intensify. The IMF’s call for stronger macroprudential frameworks, tighter supervision and improved crisis-management capacity is therefore directly linked to business confidence and investment planning.

The timing of the IMF’s emphasis reflects the oil-price assumptions in its baseline. The report’s table assumptions show an average crude export price of about $70.6 per barrel in 2025 and $62.1 in 2026, while projecting real GDP growth of 2.8% in 2025 and 3.8% in 2026–27, with nonhydrocarbon growth remaining robust through the medium term. This combination of steady non-oil expansion and softer oil prices is precisely when institutional strength matters most, because it tests whether diversification can proceed without relying on unusually favourable hydrocarbon conditions.

One of the IMF’s most practical recommendations for businesses is also one of the least visible to non-specialists: implementing a Treasury Single Account and moving towards active liquidity management. The Fund reiterates that the peg remains appropriate and argues that improved cash management and liquidity operations would strengthen monetary policy transmission. In business terms, this is about predictability in funding conditions. Government cash flows are large enough to shape liquidity across the banking system. When public balances are fragmented across multiple accounts, liquidity can be uneven and harder to forecast, which can translate into short-term rate volatility, uneven bank funding costs and abrupt changes in loan pricing.

A well-executed Treasury Single Account consolidates government cash management and improves visibility, which can make system liquidity more predictable over time. That predictability matters for corporates negotiating interest rates, for SMEs managing working capital and for suppliers exposed to payment cycles. Even when the policy rate is stable, the day-to-day liquidity environment influences how banks price credit, how tight they are on terms and how quickly they can respond to demand for financing.

The IMF also encourages readers to look beyond the headline fiscal surplus and focus on the nonhydrocarbon fiscal stance, pointing to improvements in the nonhydrocarbon primary deficit as an indicator of sustainability in an oil economy. For businesses, the relevance lies in continuity. A budget that becomes less dependent on oil windfalls tends to be more reliable for procurement planning, project pipelines and payment discipline. Yet the IMF couples that progress with a clear list of priorities aimed at locking in gains through stronger fiscal frameworks, better public investment management and budget execution; and continued reforms in revenue administration and subsidy design.

The report’s overall message to the private sector is that the next competitive edge is credibility. The IMF acknowledges Oman’s stronger fiscal position, improving debt dynamics and resilient banking sector, but it is effectively telling businesses and investors to watch how the system evolves rather than focusing only on current indicators. In the coming phase, the most commercially relevant signals will come from how prudential discipline is maintained while finance deepens, how quickly cash-management reforms improve liquidity predictability and whether capital markets deepen enough to broaden funding options beyond bank balance sheets.

Oman’s reform journey, as the IMF presents it, is moving from outcomes to architecture. If that architecture is built well, it can lower uncertainty, stabilise financing conditions and support long-horizon investment decisions aligned with Oman Vision 2040, even when oil prices are less supportive. If it is built poorly, credit can expand in the short term but tighten abruptly later, undermining precisely the sectors that diversification policies aim to grow. The business takeaway is simple: Oman’s next test is not whether money moves, but whether it moves predictably, transparently and safely, through every phase of the cycle.