Executive Summary
Issue 89. Vol 1- (December 2023)
Prudent fiscal management has helped the Sultanate reduce its public debt and continue efforts to diversify revenue sources.
Oman's economic resurgence remains steady, propelled by favourable oil prices and sustained reform initiatives. The economy witnessed robust growth of 4.3% in 2022, primarily attributed to the hydrocarbon sector. However, in the first half of 2023, year-on-year growth moderated to 2.1% due to OPEC+-related oil production cuts, according to the International Monetary Fund (IMF).
The country’s annual inflation rate rose 0.3% by the end of October, according to data issued by the National Centre for Statistics and Information (NCSI), a very small increase compared to global inflation rates. Inflation was driven by the increase in most main consumer groups such as tobacco (2.4%), food and non-alcoholic beverages (1.7%), furniture, household equipment and routine household maintenance (1.7%), culture and entertainment (1.1%), health (0.6%), and miscellaneous goods and services (2.6%).
Prudent fiscal management and elevated oil prices contributed to fiscal and current account surpluses in 2022, leading to a substantial reduction in public sector debt. Oman's sovereign credit rating received an upgrade, positioning it just one notch below investment grade, while sovereign spreads approached parity with the Gulf Co-operation Council (GCC) average and fell well below those of emerging markets.
“While growth is projected to slow down this year to 1.3% due to OPEC+-related oil production cuts, it is set to rebound starting in 2024, supported by higher hydrocarbon production and stronger non-hydrocarbon growth. Fiscal and current account balances are projected to remain in surplus over the medium term albeit trending down along with oil prices,” the IMF said.
The Omani government remains committed to fiscal discipline and social safety net enhancement. The non-hydrocarbon primary deficit is expected to decline by 3.4% of non-hydrocarbon GDP in 2023, according to the IMF. Ongoing implementation of the new social protection law aims to bolster the resilience of vulnerable groups and reinforce the sustainability of the unified pension fund. Sustaining fiscal reform momentum is crucial for long-term fiscal sustainability and intergenerational equity.
Efforts to diversify revenue sources, such as tax administration reform and personal income tax on high earners, have been prioritised. Rationalising expenditures, particularly by phasing out untargeted energy subsidies, remains a focus. As part of Vision 2040, institutionalising a medium-term fiscal framework builds on the progress achieved under the Medium-Term Fiscal Plan, ensuring fiscal discipline and credibility. Substantial investments in renewable energy and hydrogen align with Oman's National Strategy for an Orderly Transition to Net Zero, advancing the climate agenda.
