Oman economy set to recover in 2021: IMF

WASHINGTON: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Oman. The Omani economy was hit by a dual shock of the pandemic and a collapse in oil prices in 2020. Overall and non-hydrocarbon GDP are estimated to have contracted by 2.8 percent, and 3.9 percent, respectively. Labor market adjustment was facilitated by temporary wage cuts and a reduction in expatriate employment. The economy is set to recover in 2021, with non-hydrocarbon GDP growth of 1.5 percent as vaccine rollout gradually restores domestic activity along with the recovery of external demand. Oil production is projected to increase after the current OPEC+ agreement expires in April 2022. Inflation has been subdued.

The fiscal deficit and government debt rose sharply in 2020 but are projected to improve considerably over the medium term with the implementation of the authorities' Medium-Term Fiscal Balance Plan. The fiscal deficit widened to 19.3 percent of GDP in 2020, partly reflecting non-policy factors (notably the contraction in nominal GDP). It is projected to decline to -2.4 percent in 2021 and a surplus in 2022. Central government debt rose to 81.2 percent of GDP, with financing needs covered by domestic and external borrowing and asset drawdown, but is expected to decline sharply over the medium term. Fiscal consolidation and higher oil prices are projected to narrow the current account deficit to -6.2 percent in 2021 and -0.6 percent in 2026.

There are substantial uncertainties around the outlook, with downside risks dominating. On the downside, COVID19 variants would prolong the impact of the pandemic. Tighter global financial conditions could worsen the fiscal and external positions. Public debt remains vulnerable to risks, particularly from oil market developments and shocks to GDP growth, the exchange rate, primary balance, and interest rates. A substantial decline in oil prices would increase gross financing needs and have negative spillovers in the non-hydrocarbon sector. On the upside, a strong roll-out of vaccination, higher oil prices, and continued implementation of structural reforms would considerably improve the outlook.