Muscat: Those who are writing off the Omani economy need to look at the broader gauge of the current performance and examine its economic data to see that the Sultanate has already beaten expectations for the first quarter of 2016.
Those same critics would also see that Oman has experienced exceptional growth in the last two decades, due to its social achievements, increasing competitiveness, the rise of the middle class and significant urbanisation.
The critics see deficits and the stagnation of development projects, but not the solid foundation that is set to weather this challenging period.
In the first three months of this year, employment in the private sector increased by 4.6 per cent compared to the same period in 2015.
Also, average profits of private companies experienced a growth of 2.7 per cent while registrations of new businesses have gone up 7.3 per cent. Bank lending to customers has not suffered, either, and financial institutions in the first quarter of this year have not slowed in financing the business sector.
There were no signs of consumers tightening their belts, because inflation only increased by 1.2 per cent in the last quarter, compared to the same quarter last year.
Critics are commenting about the freezing of important projects, such as the OMR6 billion railway projects, the delays in opening of new airports or the downsizing of some development ventures, such as construction of roads, schools and hospitals.
Delaying these projects might prevent the economy from expanding, but will not slow it down. The state of microeconomics in Oman is still healthy and the signs are everywhere. It is true that the government is tightening its spending, but it is mainly a precautionary measure shared by other GCC countries.
It is normal to respond to the general gloom when the global economy appears to be in a crisis. But, the truth is that Oman’s economy is not in a crisis.
In the short term, even a minor shock can generate fear and put many in a panic, including policy makers. It is true there are complex and short term challenges Oman has to face, but a modest deficit of OMR3.3 billion is not something the country should fear will sound its death knell. If there is any consolation, Oman’s deficit is the lowest in the region. To say that critics are overreacting by dismissing the Omani economy is not an overstatement. Oman traditionally does not inflate its assets the way other GCC countries do.
It has remained realistic since the 1970s. By keeping its assets in real terms, the government has managed its deficits quite well in the last five years.
However, Oman needs to stick to its commitment on fiscal corrections. The path towards that target will not be easy, taking into consideration the challenges of low oil prices.
Major corrections have ups and downs. The commitment not to inflate the forecast deficit is one of them and should not catch the Ministry of Finance wrongfooted. But if one takes into consideration the commitment in the adjustments of the economy so far this year, the Sultanate is already on its way to rein in its financial complexity. The deregulation of energy prices, subsidy cuts and taxation are expected to plug the holes in state coffers.
With these austerity measures strictly in place, the good performance in the first quarter of 2016 will continue to be seen in the second quarter. The outlook of the economy, based on the current quarterly performance, looks brighter and would quiet critics if the trend continues.
This should be a comfort to policy makers, but they need to focus on the driving forces of the current economy.
There should be no nasty shocks lying ahead, as long as the current fundamentals are maintained. The simple message should be, do not panic.