IMF: Oman Economy Grows in 2023 Despite OPEC+ Oil Output Cuts

Oman’s economy continues to grow, supported by low inflation, ongoing reform efforts, and an improved fiscal situation, according to the International Monetary Fund (IMF).

An IMF staff team, led by César Serra, conducted discussions in Muscat for the 2024 Article IV Consultation from October 30 to November 13, 2024.

“Supported by favourable hydrocarbon revenues and steadfast reform efforts, Oman’s economy continues to expand. Economic growth was 1.2% in 2023, and it accelerated to 1.9% year-on-year in the first half of 2024. While growth was weighed down by oil production cuts under OPEC+ agreements, it was boosted by stronger non-hydrocarbon growth,” Serra said in a statement issued at the conclusion of the IMF mission to Oman.

The IMF noted that Oman’s non-hydrocarbon sector grew robustly, with a growth rate of 3.8% in the first half of 2024, driven by expansions in construction, manufacturing, and services. Inflation slowed to 0.6% from January to September 2024, down from 0.9% in 2023.

“The economic outlook remains favourable. Growth is projected to be 1.2% this year, weighed down by extended OPEC+-related oil production curbs, but it is set to rebound in 2025, supported by higher hydrocarbon production and continued growth in the non-hydrocarbon sector,” Serra said.

Fiscal balance remains comfortable

Serra pointed out that the sultanate’s fiscal and current account balances remain in comfortable surpluses, while public sector debt has declined further. Based on this improved fiscal situation, Oman’s sovereign credit rating was recently upgraded to investment grade, reflecting significant improvements in its economic fundamentals.

He added that Oman’s fiscal and current account balances are expected to remain in surplus over the medium term, although they may be somewhat lower than current levels as oil prices soften further.

The IMF acknowledged that the Omani authorities continue to pursue prudent fiscal management, while strengthening social safety nets. Serra emphasised, “Maintaining steady progress on fiscal reforms is essential to entrench fiscal sustainability and achieve intergenerational equity.”

He continued, “Advancing efforts to raise non-hydrocarbon revenues, through the steadfast implementation of tax administration reforms and tax policy measures, and phasing out untargeted subsidies, remain priorities. These efforts will free up resources to finance growth-enhancing investments and advance Oman’s diversification agenda.”

“Strengthening fiscal institutions, including by enhancing public financial management, rolling out a full-fledged medium-term fiscal framework, and adopting a fiscal rule while developing a sovereign asset-liability management framework, will support fiscal discipline and enhance credibility,” he added.

Reforms progressing decisively

Serra noted that reforms under Oman Vision 2040 are progressing decisively. “The new social protection law has been successfully implemented, while labour market reforms are ongoing. Initiatives to improve the business environment, attract large-scale investments, and empower SMEs are underway, and SOE (state-owned enterprise) reforms under the Oman Investment Authority continue to advance.”

“Efforts are also underway to scale up renewable energy production to reduce electricity generation costs and support the green hydrogen economy. The digital transformation agenda is progressing as well,” he added.

According to the IMF, the exchange rate peg remains an appropriate and credible policy anchor for Oman. The steadfast implementation of the Monetary Policy Enhancement Project will ensure that monetary policy actions effectively transmit to the broader economy.

Commenting on Oman’s banking sector, Serra said, “The banking sector remains sound. Profitability has recovered to pre-pandemic levels, capital and liquidity buffers are ample, and asset quality remains strong. Further development of financial markets, expanding the institutional investor base, and leveraging digitalisation will enhance access to finance and support diversification efforts,” he added.

The IMF staff team expressed its appreciation to the Omani authorities and other counterparts for their strong cooperation, candid discussions, and warm hospitality.