Muscat – The macroeconomic outlook for the Omani economy remains favourable, supported by sustained reforms under the strategic direction of Oman Vision 2040 and favorable energy prices, according to the Central Bank of Oman (CBO).

The CBO issued its annual report for 2023 on Sunday, providing a comprehensive analysis of Oman’s macroeconomic outlook over the past year.

‘The oil prices are expected to remain at a higher level, providing crucial support to hydrocarbon activities. Non-hydrocarbon growth is expected to gradually increase to 3.0% over the medium term, supported by global demand recovery, continued reforms, and robust private investment amid a shift in composition towards investments in non-hydrocarbon sectors,’ the CBO said in the report.

It noted that Oman’s fiscal outlook for 2024 is projected to witness further improvement, buoyed by favorable oil prices and fiscal consolidation measures, which have positively influenced both fiscal and external positions.

‘The Omani economy currently has a favourable outlook notwithstanding some downside risks stemming from global factors. In 2024, economic growth is projected to be higher, while inflation remains low. The year ahead provides Oman with a window of opportunity to accelerate the implementation of structural reforms. These reforms are critical to strengthening the economy’s resilience while enhancing its prospects, which are essential for Oman to effectively address future challenges,’ the CBO stated.

The report indicated that economic activity achieved decent growth levels despite global challenges in 2023, driven by significant improvement in the performance of the non-hydrocarbon sector. Prices also remained stable due to government measures aimed at containing global inflationary pressures. Moreover, the CBO suggested that the macroeconomic outlook indicates the Omani economy can achieve good growth rates in 2024.

The global economic environment remained challenging in 2023, marked by a series of events that led to a slowdown in economic activity amid rising interest rates. The ongoing threat of inflationary pressures, geopolitical tensions, disruptions in global trade, and extreme climate events were among the factors that continued to test the resilience of the global economy, the central bank reported.

‘Despite a challenging global environment, the Omani government’s policy measures and reforms have achieved notable success. Economic activity continued to expand and sustain its positive growth trajectory, driven by the recovery of non-hydrocarbon sectors. Inflation has remained low, largely reflecting lower energy prices and subdued global and domestic demand conditions,’ the report said.

It noted that fiscal and external balances remained in comfortable surpluses in 2023, and public debt was significantly reduced from 2022. Additionally, the government’s commitment to continued fiscal consolidation measures has created sufficient fiscal space to support economic activity.

After a strong rebound from the pandemic, economic activity in Oman moderated in 2023. Real GDP expanded by 1.3% in 2023, compared with 9.6% in 2022. The moderation was mainly due to OPEC+ production cuts, which led to hydrocarbon GDP growth of only 0.4% during the year. Additionally, non-hydrocarbon GDP moderated to 2.4% in real terms, down from the high growth rate of 9.1% seen in 2022.

According to the report, Oman experienced a notable decline in inflation in 2023, benefiting from the monetary policy framework, fixed exchange rate regime, and fiscal policy measures. The average consumer price inflation in Oman was 0.9% in 2023, a decrease from the 2.5% observed in 2022. This decline can be primarily attributed to lower energy prices and subdued global and domestic demand conditions.

The CBO stated that Oman’s inflation trajectory is significantly influenced by external factors, primarily due to its integration with global markets, as evidenced by fluctuations in oil prices and exchange rate movements. The impact of these factors on domestic inflation has been mitigated by an ongoing appreciation in the nominal effective exchange rate (NEER) and an increased focus on diversification. Additionally, government administrative measures have also helped contain the inflation rate.

The central bank noted that Oman’s fiscal position continued to improve, maintaining a comfortable surplus in 2023, driven by favorable oil prices, prudent policy measures, and improved fiscal discipline. As a result, the government achieved a fiscal surplus of 2.2% of GDP in 2023, marking significant progress towards its planned fiscal consolidation path, with the aim of achieving fiscal balance by 2024.