Oman Must Focus On Non-Oil Revenue for Economic Growth, Says IMF

Oman’s economic trajectory will be significantly impacted by its global oil dynamics with Opec+ cuts, and changing demand projections will impact the country’s hydrocarbon revenue and overall growth prospects.

Oman‘s economy is growing, but to have guaranteed sustainable growth, the Gulf must intensify its efforts to increase its non-hydrocarbon revenue, according to the International Monetary Fund (IMF).

At the end of an official staff visit to the country, the Washington-based fund announced that the economic growth increased to 1.9 percent on an annual basis in the first half of 2024 from 1.2 percent in the previous year.

Due to the prolonged oil production cuts by the Opec+ group, the growth is expected to stay at 1.2 percent this year but will rebound next year. According to the IMF, economic growth is possible through more hydrogen production and faster nonhydrogen growth.

Cesar Serra, who oversaw the IMF staff visit in Oman, stated that the top objective is to increase its revenue from non-hydrocarbon and focus on implementing tax administration improvements and tax policy measures. According to Mr. Serra, untargeted subsidies must be phased out to free up funds needed to boost the gross domestic product and support Oman’s diversification strategy.

However, according to the IMF, the economy’s future is unpredictable and will face significant risks due to many factors, like volatility in the oil price, the possibility of a global economic downshift, and intensifying geopolitical uncertainties.

Oman’s economic trajectory will be significantly impacted by its global oil dynamics with Opec+ cuts, and changing demand projections will impact the country’s hydrocarbon revenue and overall growth prospects. This month, eight Opec+ member countries have agreed to extend the voluntary production adjustments on 2.2 million barrels per day until the end of December.

Opec made its fourth consecutive downward adjustment last week when it lowered its estimate for 2025 and reduced the expectation for oil demand growth this year based on the data from China, India, and other countries.

According to Opec, the growth of global oil consumption in 2024 will reduce by 107000 barrels per day, and it is now expected to rise by 1.8 million barrels per day compared to the previous year.

According to the IMF, Oman’s nonhydrocarbon sector, which expanded by 1.8% the previous year, increased by 3.8% from January to June since there was growth in manufacturing, service, and construction. The inflation in the kingdom decreased from 0.9% in 2023 to 0.6% from January to September of this year.

The public sector debt continued to decrease in 2023, while fiscal and current account balances maintained a comfortable surplus. According to Mr. Serra, Oman’s sovereign credit rating was recently upgraded to investment grade, indicating a significant improvement in its fundamentals.

The IMF team traveled to Muscat from October 30 to November 13 to discuss the economy and financial development, the outlook, and the country’s policy priorities.

The fund was for initiatives to improve the business environment, attract large-scale investments, and empower small and medium-sized businesses while the state-owned enterprise reforms under the Oman Investment Authority are progressing.

Efforts are being made to increase the production of renewable energy, which will reduce the costs of producing electricity and boost the prospects of a green hydrogen economy so that the digital transformation agenda gets moving forward.

This year, Oman launched its framework for sustainable finance to boost the country’s economy by reducing the need for fossil fuels and attracting international capital.

Last month, Mahmood Al Aweini, Secretary General of the Ministry of Finance in Oman, stated that Muscat can emerge as the leading force in sustainable and green financing in the Gulf as the country continues to make reforms as part of its Vision 2040 agenda.

The Oman Investment Authority launched a 2 billion Omani rial ($5.2 billion) fund to encourage investments in the SMEs and the private sector. In October 2022, Oman launched a three-year fiscal stability program to boost the financial industry growth and induce its economic recovery, which was a slump due to the pandemic.

Mr. Serra stated that the Omani banking industry is still stable, and profit will return to its pre-pandemic level with sufficient capital and liquidity buffers.

Developing the financial markets, expanding the investor institutional base, and utilizing digitalization will enhance access to finance and support diversification efforts.