‘The sultanate’s economic growth is set to modestly recover over the medium term. In 2018, a boost in the hydrocarbon sector will drive the recovery – as the OPEC plus restrictions on oil supply are lifted and the Khazzan gas project expands production capacity’, the World Bank said in its MENA Economic Monitor - October 2017 report.
As the gradual recovery of oil prices improves confidence and encourages private sector investment, Oman’s overall GDP growth is projected to rebound to 3.4 per cent in 2018 and 2.9 per cent by 2019, the World Bank said.
Recently, the International Monetary Fund (IMF) also projected Oman’s economy to grow by 3.7 per cent in 2018.
However, the World Bank said growth in Oman continues to be held back this year by lower oil production and weaker consumption and investment. The real GDP is projected to slow down to 0.1 per cent in 2017 from 2.8 per cent in 2016, it said.
‘Compounded by participating in OPEC oil production cuts in 2017, protracted low oil prices and fiscal austerity continue to weigh on Oman’s economy. Fiscal and current account deficits remain large, and with Oman increasingly resorting to external borrowing to finance its deficits, public debt is rising rapidly’, the report said.
In 2017, Oman joined most OPEC non-members in participating in oil production cuts, leading to a contraction of the hydrocarbon sector by 2.8 per cent. Non-hydrocarbon GDP growth is estimated to continue to slow down to 2.5 per cent in 2017 from 3.4 per cent in 2016 as public spending declines with knock-on effects on consumption and investment, the World Bank said.
It said that fiscal outtruns in the first half of 2017 indicate that the deficit is expected to narrow to 13.5 per cent of GDP from 20.8 per cent of GDP in 2016. ‘This improvement reflects higher oil revenue receipts due to higher oil prices, and savings coming from higher electricity tariffs for large consumers’.
It further said the adoption of a five per cent value added tax (VAT) expected in 2018 and higher corporate income tax are expected to narrow the fiscal deficit to 11.4 per cent of GDP by 2019.
The World Bank noted that the sultanate’s policy reform agenda remains focused on economic diversification and fiscal consolidation. ‘Over the longer term, pro-business reforms such as the foreign ownership law and foreign direct investment (FDI) law, and the lifting of sanctions on Iran are expected to increase trade and investment opportunities.’