Muscat: Oman's economy is projected to grow by about 4.5 per cent in 2022, benefiting from increased hydrocarbon production and continued recovery of non-hydrocarbon activities, according to a new report by the International Monetary Fund (IMF), led by Daniel Kanda.
“The economy is strengthening, and inflation has been contained so far. Real GDP grew by 3 per cent in 2021, largely driven by the buoyant hydrocarbon sector,” a staff team from the IMF, led by Kanda, who visited Muscat, Oman, during June 5-12, 2022 to discuss economic developments, the outlook, and the country’s policy priorities.
“Inflation turned positive to 1.5 per cent in 2021 and is projected to increase to 3.7 per cent in 2022, given rebounding economic activity and rising global inflationary pressures. There are limited direct trade or financial links to Russia and Ukraine,” Kanda said at the conclusion of the mission.
The Omani authorities undertook substantial and well-coordinated vaccination efforts and policy actions to mitigate the impact of the COVID-19 pandemic and foster the recovery.
“The authorities undertook substantial vaccination efforts and policy actions to mitigate the fallout from the COVID-19 pandemic and foster the recovery. Nearly all persons 12 years and older had been at least partially vaccinated and about 90 per cent were fully vaccinated as of end-May 2022,” Kanda said.
“With declining infections, all COVID-19-related restrictions have been removed. Targeted fiscal, monetary, and financial measures provided relief to households, firms, and banks,” he added.
Favourable oil prices and continued fiscal consolidation efforts are expected to generate substantial fiscal and external surpluses, and support higher growth, over the medium term, the IMF said in a statement.
“Higher oil prices and fiscal consolidation have improved fiscal and external positions. The fiscal balance is expected to improve to a surplus of 5.5 per cent of GDP in 2022, with surpluses persisting over the medium term owing to higher oil prices and continued consolidation under the authorities’ Medium-Term Fiscal Plan (MTFP),” the statement said.
“Alongside, central government debt is expected to decline substantially from about 63 per cent of GDP in 2021 to 45 per cent of GDP in 2022. Buoyed by oil exports, the current account balance is projected to improve to a surplus of 6.8 per cent of GDP in 2022. International reserves held at the CBO increased to $19.7 billion (5.2 months of prospective imports) in 2021,” the statement added.
The banking sector remains well-capitalised and liquid, benefiting from the strong buffers before entering the crisis and prudent oversight of the Central Bank of Oman (CBO).
“The banking system has weathered the recent shocks relatively well, supported by substantial capital and liquidity buffers and the CBO’s continued efforts in strengthening regulatory and supervisory frameworks,” the IMF statement said.
“However, uncertainties and downside risks continue to cloud the outlook. Downside risks stem particularly from uncertainty about the war in Ukraine and its impact on the global economy, a renewed flare-up of COVID-19 infections, tighter-than-expected global financial conditions, increased inflationary pressures from higher global food and energy prices, more persistent disruption in global supply chains, and pressures to spend the hydrocarbon windfall.”
“Upside risks to the outlook could come from higher-than-expected hydrocarbon windfall and accelerated implementation of structural reforms under Vision 2040. In this context, the IMF team welcomes the authorities’ continued strong commitment to fiscal consolidation, under the MTFP, and structural reforms to reinforce fiscal and external sustainability,' the statement further added.