Oman’s Economy Seen Growing 4% in 2022 as Recovery Picks Up

Oman’s economy will grow by 4% this year supported by higher oil and gas production, continuing reform momentum and a pickup in investment projects, according to global credit ratings agency S&P Global Ratings. S&P on Friday raised its foreign and local currency sovereign credit ratings on Oman to ‘BB-‘ from ‘B+’, a first ratings upgrade by the agency in over a decade. It estimates that Oman’s real GDP will grow by nearly 4% in 2022, moderating to about 2.2% on average over 2023-2025 period. ‘Higher oil prices and production, about 90% double-dose vaccination rates for those 18 years and above, removal of pandemic-related measures, and public investment spending will drive stronger growth this year,’ S&P noted in a report released on Sunday.

‘While the Omani government intends to broadly continue with its fiscal reform program, we expect it will allocate some of the forecast oil windfalls this year to support economic activity and reduce the impact of past austerity on the population,’ the agency added. S&P expects the sultanate’s real GDP will increase 3.9% in 2022, from an estimated 2.1% in 2021, largely due to increasing hydrocarbon production under the OPEC+ agreement that will expire in December 2022. The agency assumes Oman’s oil production will increase to 1.135mn barrels per day in 2025, from an estimated 1.040mn barrels per day this year and 0.957mn barrels per day recorded in 2021.

Over the next three years, S&P expects the sultanate’s non-oil sector to be the leading driver of growth. It forecasts non-oil growth averaging 2.2% over 2023-2025 period, relative to 1.8% in 2022. ‘After holding back on capital expenditure during the past two years, the government and public entities investment will recover. The government announced higher spending than budgeted on development projects of 0.5% of GDP this year and 1.6% of GDP through 2025,’ the ratings agency said. However, S&P Global Ratings’ GDP growth forecasts also account for pressure from rising interest rates, and spillover effects from the Russia-Ukraine conflict on food price inflation and global demand.

First surplus since 2014

Following high fiscal and external pressures since 2015 that culminated in 2020 with the double shock from the COVID-19 pandemic and sharp fall in oil prices, S&P now expects Oman’s public finances to benefit from higher oil prices and government’s ongoing fiscal reforms. With an estimated sharp increase in oil revenues due to higher oil prices this year, S&P estimates a fiscal surplus for Oman in 2022, the first since 2014. The agency expects Oman will achieve a fiscal surplus of 5.7% of GDP this year, from the budgeted deficit of 4.6% of GDP.

‘The government’s more conservative budget assumptions are based on oil prices at US$50 per barrel, along with an expectation of stable nominal expenditure. We incorporate a 35% increase in revenue from higher oil receipts and 8% growth in spending,’ S&P noted. In light of the Russia-Ukraine conflict, S&P revised its oil and gas price assumptions in February. The ratings agency now assumes an average Brent oil price of US$85 per barrel for 2022, falling to US$70 in 2023 and US$55 from 2024, compared with US$60 for 2022 and US$55 from 2023 in its previous review. S&P further said while the government intends to limit spending growth, it expects expenses will surpass budget plans mainly because of higher-than-expected payments for gas, subsidies and transfers, and development projects. The ratings agency forecasts that the government fiscal surplus will narrow to 0.8% of GDP in 2023, and turn to deficits averaging 4.7% of GDP over 2024-2025, largely driven by its oil price assumptions.