Oman’s fiscal deficit and debt are expected to decline sharply after spiking last year when finances were hit by the COVID-19 pandemic and low oil prices, the International Monetary Fund (IMF) said recently.
The fiscal deficit is set to decrease to 2.4% of gross domestic product (GDP) this year from 19.3% of GDP in 2020, and the country is expected to switch to a surplus in 2022, according to the IMF.
S&P Global Ratings recently published a research update of the credit ratings on Oman. S&P affirmed the ‘B+/B’ long- and short-term foreign and local currency sovereign credit ratings
“Central government debt rose to 81.2% of GDP (in 2020), with financing needs covered by domestic and external borrowing and asset drawdown, but is expected to decline sharply over the medium term,” the IMF said in a statement.
Total government debt is expected to decrease to 70.7% of GDP this year and to decline further until about 47% of GDP in 2026, according to IMF estimates.
The Sultanate has embarked on a raft of measures in the past year to fix its finances, including the introduction of a value-added tax (VAT).
The overall economy shrank by 2.8% last year but is expected to rebound to a 2.5% growth this year as vaccination drives boost domestic activity and external demand, the IMF reported.
Revenue and non-GDP growth
Oman’s revenues increased marginally by 0.5% in the year to the end of July 2021 when compared to the same period in 2020, while oil revenues went up by 3.4% over 2020 on the back of a rebound in crude prices.
“As fiscal consolidation continues, the public spending continues to decline,” Oman’s finance ministry said in a recent statement. Total spending was down by 4.7% in the year to July, compared to the same period a year earlier.
Oman’s fiscal reforms helped it raise billions of dollars in bonds and loans this year.
The IMF report said that non-hydrocarbon gross domestic product (GDP) growth of 1.5% as vaccine rollout in the country gradually restores domestic activity along with the recovery of external demand.
Fiscal consolidation and higher oil prices are projected to narrow the current account deficit to -6.2% in 2021 and -0.6% by 2026, with the implementation of the authorities’ Medium-Term Fiscal Balance Plan, according to the IMF.
The IMF indicated that the exchange rate peg remains an appropriate policy anchor for Oman, helping to deliver low and stable inflation.