The Sultanate is undertaking reforms to raise non-hydrocarbon revenue, such as introducing value-added and excise taxes, and intends to continue with spending restraint.
The International Monetary Fund (IMF) said it expected Oman’s to gradually raise non-hydrocarbon growth to about four per cent over the medium term.
In a statement on its website, IMF Executive board said, Oman’s diversification efforts and the planned completion of major infrastructure projects are indicators to a positive outlook.
The Sultanate’s 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 current account deficit is estimated to have improved by three per cent points of GDP, given the Government’s further reforms efforts to improve non-hydrocarbon revenue, IMF’s Executive board expects the deficit drop to four per cent of GDP in the next two years.
Oman’s banking sector appears sound, with banks featuring high capitalisation, low non-performing 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.
IMF encouraged the Government to accelerate reforms to bolster fiscal and external sustainability, maintain confidence, and support the exchange rate peg as well as exercise deeper fiscal adjustment which are critical to put public finances on a sustainable trajectory.
The exchange rate peg has delivered monetary policy credibility with low and stable inflation and fiscal adjustment will ensure external sustainability over the long term.
While non-oil growth is expected to recover gradually and there is a potential upside from the recent increase in oil prices, persistent twin deficits are expected to lead to further increases in government and external debt over the medium term.
Non-hydrocarbon economic growth was estimated to have picked up modestly in 2017 to about two per cent from 1.5 per cent in 2016, as oil prices helped offset the impact from fiscal consolidation on economic activity
Oman posted double-digit fiscal and current account deficits over the past few years leading to large increases in government and external debt and a decline in external buffers, reflecting the lower oil price environment.
Overall real GDP growth was -0.3 per cent because of a significant contraction of oil output by -2.8 per cent due to the implementation of the OPEC agreement.