MUSCAT: After a significant contraction in 2020, the Sultanate’s economy is anticipated to make a positive recovery over the next two years, buoyed by an uptick in local consumption and the roll-out of Value-Added Tax (VAT), according to the World Bank.
The Washington DC headquartered international financial institution said in its latest update that Oman’s economy is expected to eke out an average four percent of growth over the 2021-2022 timeframe if an anticipated recovery gets underway. It partly credited this positive outlook to new natural gas volumes from the newly launched Ghazeer gas field in central Oman, which is expected to sustain strong energy demand and potentially fuel new investments as well.
“If conditions ease, growth in Oman is projected to gradually pick up to an average of 4% in 2021-22, but very backloaded to 2022, partly due to a spike from the second phase of the Khazzan field,” said the World Bank in its update for October 2020. “Gas field development has been critical to meet growing domestic and global demand, but it is not on a scale that is transformative in its own right,” it noted, however.
Earlier this month, energy major BP brought into operation the Ghazeer gas field, representing the second phase of its signature Khazzan development in Block 61. Ghazeer’s operationalization, well ahead of its scheduled launch in early 2021, underscores the Omani government’s efforts to ensure a sustainable supply of energy for the country’s power sector, as well as its rapidly expanding industrial sector – which are key to achieving Oman’s economic diversification goals.
Total production capacity from Block 61, comprising both Khazzan and Ghazeer, is expected to rise to 1.5 billion cubic feet (bcf) of gas a day and more than 65,000 barrels a day of associated condensate. With an estimated 10.5 trillion cubic feet (TCF) of recoverable gas resources, the block has the capacity to deliver approximately 35 percent of Oman’s total gas demand, according to BP.
Significantly, inflation is likely to pick up to around 3 percent in 2021, the World Bank report noted, citing an anticipated recovery in domestic demand, coupled with the introduction of VAT.
Economists estimate revenue from VAT to range from RO 300 – 400 million in a fiscal year, helping offset the sharp decline in oil and gas export revenues while easing the annual budget deficit.
Auguring well for Oman’s economic recovery is a far-reaching fiscal strategy unveiled by His Majesty Sultan Haitham bin Tarik on Thursday. The five-year roadmap, dubbed the ‘Medium Term Fiscal Balance Plan (2020 – 2024), provides a blueprint for achieving fiscal sustainability during this timeframe, notably by paring debt, prioritizing spending towards strategic national objectives, conserving and boosting State reserves, and monetizing government assets, among other goals.
In parallel with this blueprint for achieving fiscal sustainability, the government has also pledged to spend as much as RO 371 million on an array of development projects, details of which are likely to be disclosed shortly.