Oman witnesses broad-based economic recovery in 2017: CBO

POSITIVE MOMENTUM: Both hydrocarbon and non-hydrocarbon activities grew by 20.8 per cent and 3.9 per cent respectively in 2017

The Sultanate’s economy is witnessing a structural transformation with increased diversification leading to accelerated non-oil economic activities and reduced dependence on hydrocarbon sector over the last few years, according to the Central Bank of Oman (CBO).

The nominal gross domestic product (GDP) grew by 8.7 per cent in 2017 as against a contraction of 15.0 per cent and 3.0 per cent in 2015 and 2016, respectively. The economic recovery in 2017 was fairly broad-based with both hydrocarbon activity and non-hydrocarbon activity growing by 20.8 per cent and 3.9 per cent, respectively, the apex bank stated in its Annual Report for 2017.

All three non-hydrocarbon groups viz. industry, services, and agriculture & fishing witnessed growth during 2017, according to the report. The nonoil external demand also surged and contributed to the growth, suggesting the diversification programme gaining traction. The fiscal consolidation through rationalisation of expenditure and augmentation of non-oil revenue continued as the focus area, albeit it was a dragger on aggregate demand, the report noted.

Notwithstanding improved performance of nonoil economic activities, the hydrocarbon sector remains the main driver of Omani economy, the Central Bank said.

International oil prices recovered significantly with global inventories finally starting to respond to Opec and Non-opec oil producers’ agreement to cap crude production. The extension of the agreement until the end of 2018 gave a further boost to oil prices. With a surge in oil prices, the hydrocarbon sector’s contribution to the nominal GDP increased to 30.1 per cent in 2017 from 27.1 per cent during 2016.

Hydrocarbon revenues constituted 72.9 per cent of the government revenues in 2017 as against 68.2 per cent in 2016. The oil & gas exports also contributed majorly to the merchandise exports with their share edging up to 58.3 per cent in 2017 from 57.9 per cent in 2016. The value added from crude oil grew by 23.0 per cent and contributed about 91 per cent to the growth of petroleum activities, while that emanating from natural gas witnessed a growth of 10.5 per cent and contributed about 9 per cent to the incremental petroleum activities during 2017.

“The surge in international oil prices helped Oman to recover some portion of its nominal GDP that was lost during the contractionary period. The average Omani crude oil prices increased to $51.3 per barrel during 2017 as compared to $40.1 a barrel during 2016,” the Central Bank said.

During January-march 2018, the international prices for Omani crude oil averaged $62.9 per barrel as compared with $50.4 per barrel during January-march 2017. Despite a significant contribution of the hydrocarbon sector to economic activities, the economy’s dependence on this sector is reducing, reflecting the success of the public policy in this regard.

Non-petroleum industrial activities grew by 1.8 per cent in 2017 as against an annual average decline of 1.2 per cent during the contractionary period 2015-2016. The rebound in non-petroleum industrial activities in 2017 was driven by an upturn in both domestic and external demand.

The manufacturing sector registered a robust growth of 9.2 per cent, while the mining & quarry witnessed a considerable growth of 15.7 per cent in 2017. The electricity & water activities recorded a growth of 5.7 per cent in 2017. On the contrary, the value addition emanating from the construction activities experienced a sharp contraction of 7.7 per cent in 2017, suggesting a lagged effect of economic slowdown.

Accordingly, the share of manufacturing sector in the GDP emanating from non-petroleum industrial activities increased to 48.6 per cent in 2017 from 45.3 per cent during 2016, while the share of construction activities declined to 38.3 per cent from 42.3 per cent during this period.

At the macro level, the manufacturing sector contributed 9.6 per cent to the overall GDP in 2017, a marginal decrease compared to the annual average of 10.2 per cent during the period 2015-2016 and also lower in comparison with 15 per cent target to be achieved by 2020 under diversification programme and Vision 2020.

The manufacturing activities are accorded priority in the Ninth Development Plan (2016-2020), aiming at enhancing economic diversification in the economy. The policy initiatives such as public-private partnership, developing industrial clusters, industrial estates and free zones, and removal of impediments to conduct business, etc. are under way for promoting manufacturing activities in the Sultanate, the report said.

“The investment environment, which had deteriorated during the economic downturn, appears to have remained subdued as suggested by decelerating credit growth in the economy. However, improvements in macroeconomic indicators in conjunction with recovery in oil prices, helped in overcoming the uncertainty to some extent, which is critical to bolstering investors’ confidence going forward,” the Central Bank stated.

At the same time, consumption demand gained some momentum on the back of a general upswing in the economy, the report said. The external demand also gained traction reflecting robust growth in global economic activities and merchandise trade, it added.