Muscat, April 13 Economic activity is gradually recovering, according to a report by the International Monetary Fund (IMF) issued at the weekend.
After reaching a low of 0.5 per cent in 2017, real non-hydrocarbon GDP growth is estimated to have increased to 1.5 per cent last year, reflecting higher confidence driven by a rebound in oil prices and higher government spending. Oil and gas production increases brought overall real GDP growth to 2.2 per cent. Non-hydrocarbon growth is projected to increase gradually over the medium term, reaching about 4 per cent, assuming efforts to diversify the economy continue, Stéphane Roudet, a high-level official of the global multilateral body, stated.
An IMF team headed by Roudet visited the Sultanate from March 26 to April 8 to hold the 2019 Article IV consultation discussions with Omani authorities. In a statement following the concluding of the visit, Roudet also noted the improvement in Oman’s overall fiscal balance last year. The fiscal deficit is estimated to have declined to about 9 per cent of GDP from 13.9 per cent of GDP in 2017, reflecting higher oil revenues, he said.
“The fiscal deficit is projected to decline to about 8 per cent of GDP this year, as the impact of lower oil prices is more than offset by a decline in spending, one-off revenue, and implementation of a new excise tax on selected products. Further efforts to curtail spending and the planned introduction of VAT could reduce the deficit by another two percentage points of GDP over the next two years,” the statement said.
Roudet underlined the importance of “deeper fiscal consolidation” to ensure fiscal and external sustainability. The authorities are encouraged to lay out and implement an ambitious medium-term fiscal adjustment plan to help streamline public investment, and raise non-hydrocarbon revenue, he said. These efforts should be implemented by prioritising measures that help limit the impact of fiscal consolidation on growth and by placing more of the adjustment burden on those who can best shoulder it. In the near term, expeditious introduction of VAT and measures to adjust government expenditure are of the essence, he said.
External buffers remain adequate, according to the IMF. Gross international reserves of the Central Bank of Oman increased by about $1.3 billion in 2018 to $17.4 billion. The government’s external assets in the State General Reserve Fund, Oman’s sovereign wealth fund provide additional buffers. The exchange rate peg to the US dollar is appropriate considering the structure of the economy, it said.
“Accelerating structural reforms is paramount to promote private investment and job creation, improve productivity and competitiveness, and advance diversification. On the labour market front, better aligning public sector wages and benefits with the private sector and sustaining efforts to improve education and training is key. The government recently adopted important reforms in the areas of commercial law and arbitration and licensing procedures. Vision 2040’s emphasis on fiscal sustainability, governance and rule of law is welcome. Further efforts to strengthen the business environment, including by reducing obstacles to foreign direct investment, fostering competition, and further easing trade barriers would help strengthen external competitiveness. Accelerating diversification efforts under the Tanfeedh programme could also help raise non-hydrocarbon exports,” the Fund stated.
Commercial banks, the statement noted, benefit from high capitalisation, low non-performing loans, and strong liquidity buffers. Maintaining strong regulation and supervision will help strengthen resilience and ensure sustained growth, said Roudet.