IMF Report: Oman’s Economic Resilience Shines Through Challenges

In a pivotal development, the International Monetary Fund (IMF) has successfully concluded its 2023 Article IV Mission to the Sultanate of Oman, offering a comprehensive assessment of the nation’s economic landscape.

The recently concluded Article IV Mission conducted by the International Monetary Fund (IMF) in the Sultanate of Oman marks a pivotal moment in the nation’s economic trajectory. The mission, comprising a team of IMF experts, engaged in a comprehensive assessment of Oman’s economic policies, financial health, and prospects for the future.

Press releases issued by IMF staff teams conveying initial conclusions following a visit to a nation are referred to as “end-of-mission” releases. The opinions stated in this statement are those of the IMF staff and may not be the Executive Board’s opinion. Staff will draught a report based on the mission’s preliminary findings, which will be presented to the IMF Executive Board for consideration and decision-making, pending management approval.

Mr. Cesar Serra, leading discussions in Muscat for the 2023 Article IV consultation from November 1-15, provided a comprehensive summary at the mission’s conclusion. Oman’s economic recovery, supported by favorable oil prices and sustained reform momentum, saw a growth of 4.3 percent in 2022, driven by the hydrocarbon sector. However, the first half of 2023 experienced a slowdown to 2.1 percent due to OPEC+-related oil production cuts. Non-hydrocarbon growth accelerated, reaching 2.7 percent, supported by recovering agricultural and construction activities and a robust services sector. Inflation decreased from 2.8 percent in 2022 to 1.2 percent during January-September 2023.

Prudent fiscal management and high oil prices contributed to fiscal and current account surpluses in 2022, marked reduction in public sector debt, and an upgrade in Oman’s sovereign credit rating. The economic outlook remains favorable, with projected growth of 1.3 percent in 2023 due to OPEC+-related oil production cuts, followed by a rebound in 2024. Fiscal and current account balances are expected to stay in surplus over the medium term, though subject to uncertainty from oil price volatility and global developments.

The authorities are committed to fiscal discipline, aiming to reduce the non-hydrocarbon primary deficit and strengthen the social safety net. Ongoing reforms, such as the new social protection law, are designed to enhance resilience among vulnerable groups and reinforce the sustainability of the unified pension fund. Sustaining fiscal reforms is crucial for fiscal sustainability and intergenerational equity.

Efforts to enhance non-hydrocarbon revenues, including tax administration reform and a personal income tax on high earners, are prioritized. Phasing out untargeted energy subsidies and institutionalizing a medium-term fiscal framework are key measures to cement fiscal discipline and credibility.

The exchange rate peg remains a credible monetary anchor, and the ongoing Monetary Policy Enhancement Project will strengthen the monetary policy toolkit. The banking sector displays resilience, with profitability recovering, capital and liquidity ratios exceeding regulatory requirements, and strong asset quality. Implementing the financial development agenda is essential to improve financing opportunities and support economic diversification.

Progress is noted in implementing Vision 2040, with the new labor law improving working conditions and labor market flexibility. Ongoing efforts to create a more enabling business environment include reforms of state-owned enterprises under the Oman Investment Authority. The climate agenda advances through investments in renewable energy and hydrogen, aligning with the National Strategy for an Orderly Transition to Net Zero.

IMF Puts Focus on Oman’s Economic Resilience

The IMF staff, during their mission, conducted an in-depth analysis of Oman’s economic fundamentals, highlighting the nation’s ability to weather uncertainties on the global economic horizon. This resilience was notably attributed to prudent fiscal policies, effective monetary measures, and ongoing structural reforms aimed at diversification.

Fiscal Consolidation and Sustainable Policies

One of the standout aspects of Oman’s economic management recognized by the IMF is its commitment to fiscal consolidation. The mission report acknowledges the Sultanate’s strides in ensuring a sustainable fiscal policy, which has contributed to a more resilient economic framework. This commitment is crucial in navigating the complex economic landscape and fostering long-term stability.

Positive Monetary Policy Impact

Oman’s monetary policy also received commendation from the IMF. The Central Bank’s strategies in maintaining price stability and supporting economic growth were recognized as effective measures contributing to the overall economic health of the nation. This positive impact reinforces Oman’s commitment to a stable and conducive monetary environment.

Structural Reforms and Diversification

The ongoing structural reforms in Oman, particularly those focused on economic diversification and increased private sector involvement, were applauded by the IMF. The mission report underscores the importance of sustaining these efforts, emphasizing that diversification is key to enhancing economic resilience and ensuring sustainable growth.

Resilience Amid Global Uncertainties

In a world grappling with economic uncertainties, Oman’s resilience has stood out. The IMF’s assessment acknowledges the Sultanate’s ability to navigate challenges through strategic reforms and sound economic policies. This recognition not only reflects positively on Oman’s economic management but also positions the nation as a beacon of stability in the region.

Recommendations for Sustained Growth

While celebrating Oman’s economic achievements, the IMF also provided forward-looking recommendations. These include advocating for continued fiscal consolidation, increased efforts in economic diversification, and unwavering commitment to structural reforms. The mission report serves as a roadmap for policymakers, guiding Oman towards sustained economic growth and stability.

As the 2023 Article IV Mission concludes, Oman stands at the forefront of economic resilience. The IMF’s positive assessment and commendation reaffirm the Sultanate’s commitment to sound economic practices and strategic reforms.

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

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