Press Release No. 24/424

IMF Staff Completes 2024 Article IV Mission to The Sultanate of Oman

November 18, 2024

• Oman’s economy continues to expand, while inflation is low. Reform implementation under Oman Vision 2040 is proceeding decisively, with progress made on strengthening social safety nets, increasing labor market flexibility, enhancing the business environment, overhauling the SOE sector, and advancing climate and digitalization policies.
• Fiscal and external positions have improved further, leading to an upgrade of Oman’s sovereign credit rating to investment grade. Sustaining the reform momentum is key to entrench fiscal sustainability and accelerate economic diversification.
• The exchange rate peg remains a credible policy anchor. Reforms to enhance monetary policy transmission are underway. The banking sector remains sound. Advancing the implementation of the financial sector development agenda is essential to foster new funding opportunities for the private sector and support diversification endeavors.

Washington, DC: An International Monetary Fund (IMF) staff team, led by Mr. César Serra, conducted discussions in Muscat for the 2024 Article IV consultation during October 30-November 13. At the conclusion of the mission, Mr. Serra issued the following statement:

“Supported by favorable hydrocarbon revenues and steadfast reform efforts, Oman’s economy continues to expand. Economic growth turned out at 1.2 percent in 2023 before accelerating to 1.9 percent (year on year) in the first half of 2024, weighed down by oil production cuts under OPEC+ agreements, but boosted by stronger nonhydrocarbon growth. The nonhydrocarbon sector grew by 1.8 percent in 2023 and 3.8 percent in the first half of 2024 on the back of expansions in construction, manufacturing, and services. Inflation slowed down to 0.6 percent during January-September 2024 from 0.9 percent in 2023. Fiscal and current account balances remained in comfortable surpluses, while public sector debt declined further in 2023. Oman's sovereign credit rating has been upgraded recently to investment grade, reflecting the marked improvement in its fundamentals.”

“The economic outlook remains favorable. Growth is projected to remain at 1.2 percent this year dragged down by extended OPEC+-related oil production curbs, but is set to rebound starting in 2025, supported by higher hydrocarbon production and continued acceleration of nonhydrocarbon growth. Fiscal and current account balances are expected to remain in surplus over the medium term, albeit somewhat lower than their current levels, as oil prices soften further. Nonetheless, the outlook is subject to elevated uncertainty, including from oil price volatility, risks of a global economic slowdown, and intensifying geopolitical tensions.”

“The authorities continue pursuing prudent fiscal management, amidst strengthened social safety nets. The nonhydrocarbon primary deficit as a share of nonhydrocarbon GDP is poised to remain unchanged in 2024 relative to its 2023 level (29 percent—as expected during the 2023 Article IV consultation), notwithstanding higher energy subsidies and additional transfers under the new social protection law. Maintaining steady progress on fiscal reforms remains, however, essential to entrench fiscal sustainability and achieve intergenerational equity.”

“Advancing efforts to raise nonhydrocarbon revenues, through steadfast implementation of tax administration reforms and tax policy measures, and phasing out untargeted subsidies, remain a priority to free up resources to finance growth-enhancing investments to advance Oman’s diversification agenda. Strengthening fiscal institutions, including by enhancing public financial management, rolling out a full-fledged medium-term fiscal framework, and adopting a fiscal rule while developing a sovereign asset-liability management framework will support fiscal discipline and enhance credibility.”

“The exchange rate peg remains an appropriate and credible policy anchor for Oman. Steadfast implementation of the Monetary Policy Enhancement Project will ensure that monetary policy actions effectively transmit to the broader economy. The banking sector remains sound. Profitability has recovered to pre-pandemic levels, capital and liquidity buffers are ample, while asset quality remains strong. Further developing financial markets, expanding the institutional investor base, and leveraging digitalization will enhance access to finance and support diversification efforts.”

“Reform implementation under Oman Vision 2040 is progressing decisively. The new social protection law has been successfully rolled out, while labor market reforms are ongoing. Initiatives to improve the business environment, attract large-scale investments, and empower SMEs are underway, while SOE reforms under Oman Investment Authority continue advancing. Efforts are ongoing to scale up renewable energy production to reduce electricity generation costs and support the green hydrogen economy prospects. The digital transformation agenda is progressing.”

“The IMF staff team expresses its appreciation to the Omani authorities and other counterparts for their strong cooperation, candid discussions, and warm hospitality.”