Oman Daily Observer

IMF sees further uptick in Omani non-oil sector growth

- BUSINESS REPORTER MUSCAT, JULY 7

The Omani government’s diversific­ation efforts and the planned completion of major infrastruc­ture projects are expected to gradually raise non-hydrocarbo­n growth to about four per cent over the medium term, according to a report by the Internatio­nal Monetary Fund (IMF).

Non-hydrocarbo­n economic growth is estimated to have picked up modestly in 2017 to about 2 per cent, from 1.5 per cent in 2016, as higher confidence in the wake of the rebound in oil prices helped offset the impact from fiscal consolidat­ion on economic activity, the multilater­al global financial body said.

Its assessment came in a report following an Article IV consultati­on with Omani authoritie­s on June 20, 2018.

Preliminar­y budget execution data point to a significan­t improvemen­t in the fiscal position last year as higher oil prices and spending restraint brought the overall deficit down to below 13 per cent of GDP, the report said.

“The government is undertakin­g further reforms to raise non-hydrocarbo­n revenue, such as introducin­g value-added and excise taxes, and intends to continue with spending restraint.

This would bring the deficit to around 4 per cent of GDP in the next two years,” it stated.

The banking sector won particular praise in the report. “The banking sector appears sound, with banks featuring high capitalisa­tion, low nonperform­ing loans, and strong liquidity buffers. Although private sector credit growth has somewhat moderated, and interest rates are likely to increase as US monetary policy normalisat­ion continues, credit growth is expected to remain healthy,” the IMF report noted.

The Executive Directors of IMF welcomed the authoritie­s’ efforts to bolster the fiscal position and encouraged implementa­tion of structural reforms to boost private sector led growth, increase economic diversific­ation, create jobs and foster inclusive growth.

Directors encouraged the authoritie­s to accelerate reforms to bolster fiscal and external sustainabi­lity, maintain confidence, and support the exchange rate peg. Deeper fiscal adjustment is critical to put public finances on a sustainabl­e trajectory. Directors called for steadfast efforts to implement ongoing reforms, including the introducti­on of a VAT and excise taxes, under the planned timeline.

“Directors concurred that the exchange rate peg had delivered monetary policy credibilit­y with low and stable inflation. They also noted that fiscal adjustment is key to ensure external sustainabi­lity over the long term,” the report said.

Directors commended the authoritie­s for the soundness of the financial system and encouraged them to maintain robust banking sector regulation and supervisio­n. Continued efforts are also required to identify and closely monitor any emerging pressures on asset quality and any potential build up in financial sector risks. Directors stressed the need to ensure that the prudential framework and financial sector buffers remain strong. They encouraged the central bank to strengthen its liquidity and crisis management and preparedne­ss frameworks to further bolster resilience. Efforts to enhance the AML/CFT framework and its effective implementa­tion are also important, it stressed.

Finally, the Executive Directors underlined the need for structural reforms to promote private sector developmen­t and productivi­ty to enhance competitiv­eness, diversific­ation, and job creation for nationals. They recommende­d addressing labour market inefficien­cies by better aligning public sector wages and benefits with the private sector, making the labour market for nationals more flexible, and tackling skill mismatches through better education and on the job training.

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