Muscat – Oman’s economy is expected to expand moderately in 2023, according to a new report commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW) and compiled by Oxford Economics, a leading economic research and consulting firm.

While Oman’s non-oil economic activities are forecasted to grow by 2.9%, up from 1.6% last year, headwinds in the oil sector, driven by OPEC+ policy changes, will cause the sultanate’s 2023 GDP growth to slow to 2.5% year-on-year compared to the 4.3% growth in 2022.

Oman’s economy entered this year on a positive note, expanding at a growth rate of 4.7% in the first quarter of 2023, outpacing the average growth rate of the previous year and driven by non-oil output, which expanded by 4.6%, the report noted.

According to the ICAEW report, in alignment with the OPEC+ agreement, Oman is expected to reduce oil output to 1.042mn barrels per day (bpd) this year, down 2.1% from last year, with further adjustments anticipated in the coming year. Meanwhile, gas production increased by 3.4% in 2022 and will continue to rise as more projects come online, shifting the composition of energy trade further in favor of gas.

Despite hotel occupancy rates hovering slightly below 2019 levels, tourism is expected to be among the key sectors boosting the sultanate’s non-oil economic recovery, with indicators such as visitor numbers showing promising signs of improvement, the report noted.

Economic diversification

Oman is capitalizing on growth and diversification plans in the region, such as the UAE’s Etihad Rail, which will connect Oman, the UAE, and Saudi Arabia, according to the report. It added that Oman is also advancing renewable wind and solar energy projects, aiming to raise the share of renewable energy to 30% by 2030, up from the current 5.5%.

However, with energy sector trends being unfavorable, a small budget deficit is anticipated both this year and next, as estimated by the ICAEW.

‘Fiscal data for January to July shows a positive balance due to lower spending. Still, the decline is expected to exert pressure on the budget for the rest of the year,’ the report said.

In 2022, Oman achieved a budget surplus of 2.7% of GDP, driven by a commodity price boom, marking a significant shift from prior budget and trade deficits into surpluses and repayment of external debt. The ICAEW estimates that this lowered the public debt-to-GDP ratio to 40% last year, down from a peak of over 65% in 2020.

Hanadi Khalife, Head of Middle East at ICAEW, said, “Despite last year’s growth being primarily bolstered by elevated oil prices, Oman is demonstrating its ability to sustain economic expansion by diversifying and fostering growth within its non-oil sector. The marked expansion in renewable energy, tourism, and the pursuit of sustainable finance initiatives underscores Oman’s unwavering commitment to maintaining its upward growth trajectory amid global economic challenges.”

Scott Livermore, Chief Economist and Managing Director of Oxford Economics Middle East, said, “While Oman confronts challenges in its oil sector, the nation’s strategic emphasis on non-oil sectors and renewable energy is positioning it for sustained economic expansion. The government continues to unveil plans to support its medium-term growth with a $5.2bn Future Fund to boost investment, the expansion of Muscat’s outskirts, and several other mega projects. The decision to diversify revenue streams away from oil sources is vital for Oman’s resilience in the face of changing global energy trends, and the sooner it’s done, the better.”