Favorable Oil Prices Help Oman’s Economy Stay Strong

As Oman celebrates its 53rd National Day, the sultanate’s economic landscape showcases remarkable resilience, resurgence, and enhanced fiscal performance despite global economic and geopolitical uncertainties. The synergy of government’s economic diversification initiatives, favorable oil prices, and prudent fiscal policies has propelled the economy over the past two years. Last year marked Oman’s most robust economic rebound in nearly a decade, attributed to comprehensive economic stimulus packages, elevated oil prices, and increased hydrocarbon production. Notably, the recovery extended beyond the oil sector, with the non-oil sectors demonstrating substantial improvement. Last year, Oman posted its first budget surplus in nearly a decade.

GDP growth

After recording a 4.3% GDP growth in 2022, Oman’s economy grew by 2.1% in the first half of 2023, predominantly driven by non-oil sectors such as transport, storage, agricultural, and fisheries activities. The growth highlights Oman’s successful efforts under the 10th Five-Year Plan for economic diversification. The integration of policies and accelerated programs to achieve Oman Vision 2040 and the 10th Five-Year Plan has been beneficial in propelling economic growth. Non-oil sectors played a pivotal role, contributing approximately 69.4% to GDP in the first half of 2023. The government’s proactive measures, including stabilizing fuel prices and expanding VAT exemptions, underscore its commitment to mitigating inflation effects. The economic growth, coupled with a decrease in Oman’s public debt, substantial allocations for development projects, and advancements in AI implementation, shapes a promising trajectory for Oman’s economic future.

Fiscal performance

His Majesty Sultan Haitham bin Tarik, during a Council of Ministers meeting on October 11, 2023, expressed satisfaction with Oman’s fiscal performance over the past three years. His Majesty the Sultan valued the positive outcomes that strongly contributed to consolidating GDP growth, upgrading the country’s financial and economic indicators, and generating a financial surplus for economic and social priorities. According to the Central Bank of Oman (CBO), windfall oil revenues from higher-than-budgeted oil prices and prudent fiscal management under Oman’s Medium-Term Fiscal Plan have eased debt pressure on the government and provided economic buffers. In its Financial Stability Report 2023, the CBO said that Oman’s debt-to-GDP ratio has decreased to around 40%, marking a significant improvement from the 66% recorded in 2021. The reduction in debt levels and higher GDP have enhanced Oman’s debt sustainability. The central bank emphasized that the Omani financial system has exhibited remarkable resilience, with short-term risks to financial stability remaining muted. This resilience positions the Omani financial system to support the economy effectively. ‘With the government’s fiscal space showing improvement, it is expected that the issuance of new debt will decrease significantly in the near future compared to the previous years of fiscal distress (2015-2021). This positive trend reflects the government’s ability to rely less on borrowing as its financial situation strengthens,’ CBO said.

Sovereign ratings

Oman’s sovereign credit ratings received a boost in 2022 and 2023, reflecting the nation’s economic resilience and improved fiscal space. Helped by strong economic growth and an improved fiscal position due to the government’s fiscal reforms and higher oil prices, the sultanate’s sovereign credit ratings were upgraded by various global rating agencies in 2022 and 2023. In September 2023, S&P again upgraded Oman’s long-term foreign and local currency sovereign credit ratings to ‘BB+’ from ‘BB,’ while Fitch Ratings upgraded Oman’s long-term foreign-currency issuer default rating to ‘BB+’ from ‘BB,’ maintaining a stable outlook. The Ministry of Finance attributed the improvement in Oman’s credit ratings to ongoing fiscal consolidation measures, elevated oil prices, a decline in public debt risks, and improvement in monetary indicators. The International Monetary Fund (IMF) commended Oman’s economic measures and financial efforts, particularly in controlling expenditure and reducing public debt. The IMF recently said that the sultanate’s economy continues to grow, and inflation is contained at low levels. The IMF acknowledged that the Omani authorities have made decisive strides in the structural agenda under Oman’s Vision 2040, and continued implementation will help diversify the sultanate’s economy and boost prospects for strong, inclusive, and green non-hydrocarbon growth.