‘Oman’s economy expected to continue slowdown this year’

The central bank report said that lower oil prices continued to weigh on macroeconomic scenario, notwithstanding reform measures undertaken to improve the fiscal balance.

MUSCAT: Oman’s economy is expected to witness a slowdown in 2017, but the country is well placed to deal with the challenges posed by the economic slowdown in the short term, the Central Bank of Oman (CBO) said in its annual report released on Sunday.

The government has been proactive in undertaking various measures to address the macroeconomic challenges over the medium-term.

“Although oil prices are expected to further recover somewhat, Oman oil price would remain much lower than the external breakeven level. At the same time, planned fiscal consolidation is expected to slow down the growth of the non-hydrocarbon sector,” the report noted.

Lower hydrocarbon prices continued to weigh on the overall macroeconomic scenario in Oman, notwithstanding various reform measures undertaken by the authorities to improve fiscal balance, and promote economic diversification to reduce dependence on the oil sector.

Both the current account balance and fiscal balance remained in large deficit for the second consecutive year in 2016. The output in hydrocarbon sector declined significantly, while non-hydrocarbon sector output grew marginally in 2016.

Overall nominal gross domestic product (GDP) (at market prices) contracted by 5.1 per cent, while inflation inched up to 1.1 per cent during 2016. The fiscal deficit further grew and consequently, 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.

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) will be paramount for shaping the medium-term outlook of the Omani economy.

Furthermore, the continued emphasis on economic diversification under the Ninth Five Year Development Plan and Tanfeedh would pave the way for sustainable growth in the economy.

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

Inflation rate

Notwithstanding the decline in government expenditure, the average inflation based on consumer price index (CPI) for the Sultanate increased to 1.1 per cent during 2016 from 0.1 per cent in 2015 mainly due to the recovery in international commodity prices, increase in energy prices and other user fees and charges.

Inflationary pressure in Oman is largely conditioned by government spending, international prices, and the movement of US dollar due to the pegging of Rial Omani, the CBO said in its annual report.

Nevertheless, the consumer inflation in Oman compares favourably with that of Gulf Cooperation Council (GCC) countries which is projected to rise to 3.5 per cent in 2017 from 2.9 per cent in 2016. Both demand and supply side factors emanating from domestic as well as external sources have impacted the price level in Oman.

The CBO also said that the Omani economy contracted in nominal terms for the second year in a row in 2016, after a sustained robust expansion over five years (20102014), mainly due to steep decline in hydrocarbon prices. Despite expansion in output, the revenues from hydrocarbon sector declined reflecting lower level of oil prices caused by slackening of external demand. At the same time, domestic demand also weakened due to decline in government expenditure by 5.8 per cent.

Consequently, Oman’s nominal GDP contracted by 5.1 per cent in 2016, on top of a drop of 13.8 per cent in 2015. Component-wise, nominal oil sector GDP decreased by 23.7 per cent in 2016 while the non-oil sector registered a growth of 0.6 per cent during the period.

Manufacturing sector declined by 17.2 per cent during 2016, mainly reflecting weak external demand. Agriculture and fishing sector, however, registered a solid growth of 16.3 per cent in 2016 as against an average growth of about 6.4 per cent in the previous five years. The intensive efforts of the government aimed at economic diversification have contributed significantly to the growth of services sector and its share to GDP improved to 53.5 per cent in 2016 from an average of 39.6 per cent during the previous five years.