publication April 16, 2018

Oman's Economic Outlook - April 2018

Economic growth is set to modestly recover over the medium term with GDP expected to increase by 2.3% in 2018 and 2.5% in 2019. In 2018, a boost in the hydrocarbon sector is expected to drive the recovery as the Khazzan gas production expands. In the outer years, as the OPEC+ restrictions on oil supply are lifted and as the gradual recovery of oil prices improves confidence and encourages private sector investment, GDP growth is projected to rebound to 2.9% by 2020.

Over the longer term, pro-business reforms such as foreign ownership, FDI, SME support and PPP laws are expected to increase trade and investment. A further impetus to growth will be provided by rising natural gas exports from the seven-year natural gas supply deal signed between BP and Oman LNG. Monetary policy will remain tight as interest rates continue to rise. Owing to the hike in electricity tariffs and the VAT, inflation is expected to inch up to 3% in 2019 before moderating in 2020 as cost push pressures from subsidy reform dissipate.

The main social concern for Oman is the lack of jobs and the adverse effects of subsidy reform on vulnerable households. The most recent ILO estimate of unemployment was 17% in 2017, while youth unemployment is approximately 49% — a pressing challenge in Oman where over 40% of the population is under the age of 25. In January 2018 the authorities launched an initiative to provide 25,000 new jobs in the private sector and stopped issuing visas to expats for certain professions. The government announced mitigation measures to support the vulnerable population in 2018; (1) it will allocate 100 million rials (US$260 million) to support needy households, (2) a new fuel subsidy scheme where households with an income below 600 rials will receive 200 liters of petrol per month at a subsidized rate.