Oman needs strong medium-term plans to address fiscal vulnerabilities; IMF

By Shilpa Annie Joseph, Desk Reporter
  • Follow author on
Representational Image

The International Monetary Fund (IMF) has stated Oman has to develop a strong medium-term plan to minimize fiscal risks and put debt on a downward path.

The Fund said in a report, “The country, hit hard by the twin shock of lower oil prices and the coronavirus crisis last year, saw its economy contract by 2.8 percent in 2020, with non-oil GDP shrinking by 3.9 percent.”

“The authorities’ cautious approach toward reopening has helped contain the new cases since early 2021,” the lender noted. The Oman government has implemented fiscal, monetary, and financial support measures to relieve the burden on households, businesses, and banks.

Last year, Oman’s central bank had launched an incentive package worth $20 billion (8 billion Omani riyals) for financial institutions to help mitigate the impact of the coronavirus on the country’s economy. The Sultanate’s overall GDP is expected to grow by roughly 2.5 percent in 2021, and non-oil GDP by 1.5 percent, as it increases vaccine rollouts to prevent the spread of the pandemic and oil prices rise.

According to the IMF, Oman’s fiscal balance is also expected to enhance considerably over the medium term, from a deficit of about 19.3 percent of GDP in 2020 to 2.4 percent of GDP this year, on the back of higher oil prices and fiscal adjustment measures.

The current account deficit is forecasted to shrink to 0.6 percent of GDP over the medium term, after growing to 13.7 percent of GDP in 2020 due to fiscal consolidation and a greater trade balance surplus.

According to the lender, the emergence of COVID-19 variants could prolong the pandemic’s influence on global outlook and financial circumstances, and hence exacerbate the economic impact on Oman. “Volatility in oil prices would also have a significant impact on the outlook,” it added.

“The Central Bank of Oman should continue to have a forward-looking assessment of banks’ asset quality and ensure adequate capital buffers to withstand credit risks if they materialize. Extending loan moratoria should be data-dependent and increasingly targeted to distressed but viable borrowers,” the IMF added.

Further, the fund noted that the government had requested technical assistance to enhance its fiscal framework and develop a medium-term debt strategy “to guide the government’s borrowing program and offer more predictability to the financial system.”

Related: Oman speeds up COVID-19 vaccination campaigns with fresh supplies