IMF praises Oman’s decisive steps
Monetary and financial policy responses to strike a balance between supporting the economy and containing risks Moving towards greener economy with optimum use of abundant wind and solar energy resources
‘Oman moved rapidly and decisively to contain the COVID-19 crisis. Containment measures and health support to the population have limited the cases and fatalities’ 2.5% growth in GDP expected in 2021
Reforms for state owned enterprises to enhance competition and more efficient use of public resources 1.5% growth in non-oil GDP expected in 2021
Praising the sultanate's response to the COVID-19 crisis, the International Monetary Fund (IMF) has said that Omani authorities acted 'rapidly and decisively' to address the health and economic effects of the pandemic.
‘Oman moved rapidly and decisively to contain the COVID-19 crisis. Containment measures and health support to the population have limited the cases and fatalities. The authorities’ cautious approach towards reopening has helped contain new cases since early 2021,’ the IMF said in its statement of the 2021 Article IV Mission to Oman.
Recognising the positive impact of the sultanate's Economic Stimulus Plan, the IMF said fiscal, monetary and financial support
measures introduced by the government have been deployed to ease the burden on households, firms and banks.
‘The authorities have acted decisively to address the health
and economic effects of the pandemic. While gradual recovery is expected in 2021 and beyond, combating the pandemic and mitigating its effects remain the key near-term priorities until re
covery is firmly established,’ it said.
The IMF estimates that Oman's real GDP – which contracted by 2.8 per cent in 2020 – will grow by around 2.5 per cent in 2021, with about three per cent average growth over the medium-term. The sultanate's economy, as per the IMF, is expected to benefit from projected modest increase in hydrocarbon production in the medium-term.
The fund projects non-hydrocarbon GDP growth of 1.5 per cent for 2021, as vaccine rollout gradually restores domestic economic activity along with the recovery of external demand. ‘Thereafter, it (non-hydrocarbon GDP) increases gradually over the medium-term as the impact of fiscal adjustment subsides, reaching four per cent in 2026.’
However, there are substantial uncertainties around the sultanate's economic outlook. The emergence of COVID-19 variants could prolong the impact of the pandemic on the global outlook and financial conditions, and thus intensify the economic impact on Oman, the IMF warned.
‘Volatility in oil prices would have a significant impact on the outlook. Fiscal consolidation could weigh on economic growth and social pressures could create headwinds for reforms. Upside risks to the outlook would come from a strong rollout of vaccination and a stronger rebound in global activity than anticipated,’ the fund explained.
The IMF said that Oman's near-term priority continues to be combating the pandemic until the recovery is entrenched. Efforts, it added, have focused on addressing the health crisis (including vaccine rollout), supporting the recovery, minimising economic scarring, and mitigating risks to financial stability.
The International Monetary Fund (IMF) expects Oman’s fiscal deficit to sharply decline to 2.4 per cent of GDP in 2021 from around 19.3 per cent of GDP in 2020.
'Fiscal and external balances are projected to improve considerably over the medium term . After deteriorating sharply in 2020 to a deficit of about 19.3 per cent of GDP, reflecting lower oil revenue and a slump in economic activity, the fiscal balance is projected to improve to -2.4 per cent of GDP in 2021,' the IMF said in its statement of Article IV Mission to Oman.
The statement noted that the sultanate's fiscal balance is expected to move to a surplus over the medium term, with a substantial decline in the government debt.
This substantial improvement in fiscal balance will be contributed mainly by higher oil prices and fiscal adjustment measures taken by the government.
The impact of fiscal consolidation, the IMF said, is mitigated by various policy support measures including social spending and temporary reductions and waivers of taxes and fees.
'With oil prices currently higher than budgeted, there is scope for additional temporary targeted support for affected households and businesses if needed without jeopardizing medium-term consolidation objectives,' the fund said.
According to the IMF, steadfast implementation of the sultanate's Medium-Term Fiscal Plan (MTFP) is essential to reinforce fiscal sustainability.
The sultanate's MTFP targets the elimination of the fiscal deficit over the medium term by boosting non-hydrocarbon revenue while keeping nominal fiscal expenditure broadly constant and improving its efficiency and targeting.
'Strengthening Oman’s medium-term fiscal framework, with a clear fiscal anchor, would help in achieving the fiscal consolidation.
The government has taken important steps in developing the fiscal framework with a balanced budget objective,' the IMF said. The statement said that Omani authorities have requested IMF's technical assistance to help strengthen the medium-term fiscal framework.
The IMF further said that the establishment of the Debt Management Committee to coordinate debt issuance of Oman and manage financial exposures is a welcome step.
'The authorities have requested IMF technical assistance to help develop a medium-term debt strategy to guide the government’s borrowing program and provide more predictability to the financial system,' the IMF added.
The authorities have requested IMF technical assistance to help strengthen the medium-term fiscal framework and develop a medium-term debt strategy