Eco­nomic slow­down ex­pected to con­tinue dur­ing 2017, says CBO

Muscat Daily - - BUSINESS -

The slow­down in Oman’s econ­omy is ex­pected to con­tinue dur­ing 2017, ac­cord­ing to the Cen­tral Bank of Oman (CBO).

The cen­tral bank said Oman’s hy­dro­car­bon sec­tor is ex­pected to fur­ther slow­down in 2017, de­spite some re­cov­ery in oil prices, due to lower oil pro­duc­tion as part of the agree­ment be­tween OPEC and non-OPEC pro­duc­ers.

‘At the same time, planned fis­cal con­sol­i­da­tion is ex­pected to slow­down the growth of the non-hy­dro­car­bon sec­tor’, the CBO said in its an­nual re­port re­leased on Sun­day.

Although oil prices are ex­pected to fur­ther re­cover some­what, Oman’s oil price would re­main lower than ex­ter­nal break-even level, it said.

As per the In­ter­na­tional Monetary Fund’s pro­jec­tions, oil prices are ex­pected to av­er­age at about US$55 per bar­rel dur­ing 2017-18 com­pared to an av­er­age of US$43 per bar­rel in 2016.

‘Over­all, the slow­down in Omani econ­omy is ex­pected to con­tinue dur­ing 2017. Nonethe­less, the progress on macroe­co­nomic re­forms, such as in­tro­duc­tion of ex­cise and value added tax (VAT), ap­proval for leg­is­la­tions on labour and for­eign di­rect in­vest­ment (FDI) would be para­mount for shap­ing the medium-term out­look of Omani econ­omy, es­pe­cially in the back­drop of ex­pec­ta­tions about low hy­dro­car­bon prices’, the CBO said.

Ac­cord­ing to the CBO re­port, the out­put of hy­dro­car­bon sec­tor de­clined by 23.7 per cent, while non-hy­dro­car­bon sec­tor out­put grew marginally by 0.6 per cent in 2016. ‘Over­all GDP (at mar­ket prices) con­tracted by 5.1 per cent in 2016, lower than con­trac­tion of 14.1 per cent dur­ing 2015, mainly due to de­cline in both gov­ern­ment spend­ing and net ex­ter­nal de­mand’.

As the gov­ern­ment re­sorted to bor­row­ing through loans and bonds from both do­mes­tic as well as ex­ter­nal sources to fi­nance fis­cal deficit, the CBO said the sul­tanate’s debt-to-GDP ra­tio shot up from 12.8 per cent at the end of 2015 to 31.4 per cent at the end of 2016.

‘Con­tin­u­a­tion of on­go­ing fis­cal re­forms - re­duc­tion in sub­si­dies, con­tain­ing cur­rent ex­pen­di­ture and pri­ori­tis­ing cap­i­tal ex­pen­di­ture - would also re­main a main cat­a­lyst for fu­ture macro out­look’, the re­port said.

‘Gov­ern­ment has al­ready taken var­i­ous mea­sures to pro­mote tourism, and ex­pand man­u­fac­tur­ing sec­tor, but ap­proval of the leg­is­la­tion on FDI would usher in in­creased par­tic­i­pa­tion of for­eign in­vestors and ac­cel­er­ate the pace of eco­nomic diver­si­fi­ca­tion in the econ­omy’, the CBO added.

Planned fis­cal con­sol­i­da­tion is ex­pected to slow­down the growth of the non-hy­dro­car­bon sec­tor

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