Higher hydrocarbon production will support growth in 2025

Even with reform efforts over the past three years, Oman’s economy remains dependent on the oil sector, which accounts for about 30 percent of GDP, 60 percent of goods exports, and 75 percent of government revenues.

The international credit rating agency further said higher hydrocarbon production will support growth in 2025 and 2026. “We expect the government’s fiscal and economic reform momentum will continue over 2024-2027 and we forecast real GDP will expand by about 2 percent per year on average over 2024-2027.”

The rating agency said that the government has introduced measures to address governance and public finance issues. Along with the introduction of value-added tax (VAT), these include gradual cuts to electricity and water subsidies and a tighter rein on capital and current spending. The authorities have made strides in improving transparency and data disclosure, including by publishing quarterly real GDP data, a yearly international investment position, and an IMF Article IV.

S&P further said, “We forecast general government budget surpluses to average about 1.2 percent of GDP over 2024-2027 and the government reform efforts and favourable oil prices should support budget surpluses.

Despite favourable terms of trade over 2024-2027, usable reserves will remain largely unchanged, partly due to government debt repayments,”.

“We expect Oman will maintain its currency peg, supported by its accumulated government external assets of about 35 percent of GDP,” the rating agency said.

Oman achieved twin surpluses in 2022 and 2023, following seven years of sometimes substantial budget and current account deficits.

The Omani authorities’ fiscal reforms continue, with ongoing cuts to electricity, water, and waste management subsidies (as those entities work on cost optimisation); public wage reforms; rationalisation of capital spending; and a potential new personal income tax on high earners.

The latter would be a first for the

GCC region. “As a result, we expect it will be introduced gradually and be relatively low.”

The international rating agency further said that while revenue will remain concentrated on oil and gas receipts, the Omani government has continued to reduce the budget’s reliance on them in line with its medium-term fiscal plan, currently being updated. “We expect the government will focus on improving corporate tax administration and collection to strengthen non-hydrocarbon receipts. It is less likely that government fees or the VAT rate will be raised over our forecast period to 2027. We also do not expect personal income tax on high earners to be introduced before 2025.”

“We expect Opec+ related oil production cuts to keep economic growth low at about 1.4 percent in 2024. Oman is a voluntary adherent to the Opec+ agreement. We expect hydrocarbon sector output to be broadly flat, with the decline in oil production mitigated by an increase in condensate and gas production,” S&P further said in its latest report.