Oman's economy on strong recovery path

Oman’s economy this year is witnessing its strongest recovery

in nearly a decade as higher oil prices, increased hydrocarbon production and removal of the pandemic restrictions have provided much needed boost to the economic activity.

The combination of pandemic lockdowns and weak oil prices had a major negative impact on the sultanate’s economy and fis

cal position in 2020, but the economic recovery – which actually began in 2021 – accelerated in 2022, thanks to the government’s economic stimulus measures, fiscal reforms and improved oil prices.

Oman’s strong and effective vaccination drive allowed for removal of almost all social dis

tancing restrictions, supporting a rebound in economic activities. As a result, the sultanate’s economy – which recorded a 3.2 per cent contraction in 2020 – rebounded with a 3.0 per cent growth in 2021.

The sultanate’s economic recovery has gained further traction in 2022. Nominal GDP – gross domestic product at cur

rent market prices – recorded a whopping 32.4 per cent growth in the first half of 2022, the fastest economic expansion in over a decade.

Positive outlook

As Oman’s economic recovery picked up pace and fiscal position substantially improved in 2022, these positive developments have been noticed and recognised by the international organizations – such as the International Monetary Fund (IMF)

and the World bank – and global credit rating agencies.

The IMF has raised its forecast for Oman’s 2022 economic growth. The fund expects the sultanate’s real GDP to grow by 4.3 per cent in 2022.

'Strong vaccination efforts have allowed for the relaxation of all social distancing restrictions,

and the economic recovery is gaining traction,' the IMF said in

its Article IV Mission report released on Tuesday.

It said, 'Strong measures helped mitigate the health and socioeconomic impacts of the pandemic. Non-hydrocarbon growth is expected to strengthen over the medium term, supported by the oil price outlook, planned investments, and structural reforms.'

According to the World Bank, Oman’s economy is anticipated to expand by 4.5 per cent in 2022 before settling to an aver

age of 3.2 per cent in 2023 and 2024.

'The sultanate’s economy is projected to continue its recovery and strengthen over the

medium-term, driven by robust energy prices, expansion of oil and gas production, and wide

ranging structural reforms,’ the World Bank said in its Gulf Economic Update.

The biggest global credit rating agency, S&P Global Ratings, expects higher oil prices and production volumes, as well as public investment spending, to be the key drivers of Oman’s stronger economic growth in 2022. S&P expects Oman’s real GDP will grow by nearly four per cent in 2022.

Similarly, Fitch Ratings has projected GDP growth at 4.4 per

cent for 2022, mainly driven by higher crude oil and gas produc

tion.

Budget surplus

Following high fiscal and external pressures since 2015 that culmi

nated in 2020 with the double shock from the COVID-19 pandemic and sharp fall in oil prices, Oman’s public finances are now benefiting from higher oil prices and government’s ongoing fiscal reforms.

The sultanate’s budget surplus increased to Ro1.12bn in the first nine months of 2022 com

pared to a deficit of Ro1.03bn in the corresponding period of 2021, owing to a sharp increase in oil and gas income amid higher global energy prices.

According to the IMF, high oil prices and fiscal consolidation under the authorities’ MediumTerm Fiscal Plan (MTFP), have improved Oman's fiscal and external balances considerably.

'The authorities remain committed to fiscal consolidation. Significant fiscal adjustment is

being implemented in 2022, which has allowed for increased

social spending while still gener

ating a substantial surplus due to the oil windfall,' IMF added.

Ratings boost

Various global credit rating agencies have upgraded Oman’s credit ratings and outlook during 2021 and 2022 due to the sul

tanate’s commitment to fiscal reforms and initiatives within the

context of its Medium Term Fiscal Plan, higher oil prices and im

proved economic and financial indicators.

In April 2022, S&P raised its foreign and local currency sovereign credit ratings on Oman to ‘BB-‘ from ‘B+’, a first ratings upgrade by the agency in over a decade. S&P on October 1, 2022 affirmed its ‘BB-‘ long-term and

‘B’ short-term foreign and local currency sovereign credit ratings on Oman. The agency maintained its ‘stable’ outlook on the sultanate’s ratings.

S&P said it could raise Oman's ratings over the next 12 months if continued reforms strengthened the sultanate’s fiscal position.

Following S&P, Moody’s also in October 2022 upgraded its outlook on Oman’s issuer rating to ‘positive’ from ‘stable’ and affirmed its long-term issuer and

senior unsecured ratings at ‘Ba3’.

Furthermore, Fitch Ratings in August 2022 upgraded Oman’s

long-term foreign-currency issuer default rating to ‘BB’ from ‘BB-‘ with a 'stable' outlook.

Oman’s Ministry of Finance attributed the improvement in Oman’s credit ratings to the ongoing fiscal consolidation measures, higher oil prices, a decline

in public debt risks and improvement in monetary indicators.