Real growth rebounded and turned positive in 2018: CBO

FINANCIAL STABILITY REPORT: While characterising the macroeconomic outlook for Oman as ‘robust’ over the short-term, the CBO however stressed the need for stronger fiscal reforms

The Omani economy continued its recovery in 2018, bolstered by the combination of stronger hydrocarbondriven nominal growth and sustained growth in non-hydrocarbon activities, the Central Bank of Oman (CBO) said in its newly published Financial Stability Report 2019, issued on Thursday.

Real growth also turned positive during the year, the apex bank stated. “Stronger growth enhanced domestic liquidity and backed growth in bank deposits and credit, providing the needed support to the Omani financial sector,” it noted in its annual assessment of the stability of the Sultanate’s banking and financial industry.

Summing up its evaluation of the sector, the Central Bank said: “Savings increased, narrowing down the saving-investment gap and positively reflecting on the Sultanate’s external position. Domestic interest rates continued to rise during 2018 following the tightening of monetary conditions in the USA. The fixed exchange rate, however, continued to serve as an effective nominal anchor, contributing to lower inflation during the year. Both fiscal and current account deficits dropped significantly.”

Nevertheless, it warned that the twin deficits saddling the Omani economy was still a source of concern. Both non-hydrocarbon fiscal and current account deficits increased during 2018. CBO net foreign reserves remained solid, providing sufficient import cover and supporting the fixed exchange rate regime.

While characterizing the macroeconomic outlook for Oman as “robust” over the short-term, it however stressed the need for stronger fiscal reforms. “Over the mediumterm, however, accelerated economic diversification and continued fiscal reforms are deeply needed to reduce vulnerabilities to external factors and sustain the macro-financial stability of the Omani economy,” it said.

According to the report, real growth rebounded and turned positive in 2018. Oman’s real GDP (at constant 2010 prices) declined by 0.9 per cent in 2017. Real GDP is estimated to rebound and grow at 2.1 per cent in 2018, it said, citing projections by the IMF. The non-oil sector is estimated to grow at 2.5 per cent in 2018, compared to an estimated real growth of only 1.6 per cent in the oil sector.

The fiscal deficit declined from RO 3.76 billion in 2017 to RO 2.65 billion in 2018, mainly due to the significant recovery in oil prices. This reduced the overall deficit by 5.1 per centage points of GDP to reach 8.7 per cent of GDP in 2018. The non-hydrocarbon primary fiscal deficit, however, increased by about RO 244 million in 2018, from 41.9 per cent to 42.3 per cent of nonhydrocarbon GDP.

“The government debt burden continued its upward trajectory in 2018,” the Central Bank said. “Total government debt (both short- and long-term) increased to RO 14.76 billion, or 48.4 per cent of GDP, of which external debt amounted to RO 11.80 billion, or 38.7 per cent of GDP.”

Significantly, the Omani current account in 2018 witnessed its biggest annual improvement since 1980, the report said. The current account deficit dropped by RO 2.55 billion, from RO 4.22 billion to RO 1.67 billion, and its ratio to GDP fell by 10 per centage points, from 15.5 per cent to only 5.5 per cent. The nonhydrocarbon current account deficit, however, rose by RO 570 million to reach RO 12.16 billion (64.1 per cent of non-hydrocarbon GDP) in 2018.