The economy is expected to contract very sharply in 2020 amid the weakness of oil prices and the disruptions from COVID-19. Fiscal and external deficits will remain under immense strain due to prolonged low oil and gas prices, elevating public and external debt. Key risks to the outlook are prolonged low oil prices, which will induce high external borrowing needs, and lack of impetus for private sector job creation that does not depend on government spending.
The drop in oil prices and COVID-19 are placing unprecedented strain on Oman’s economy. While no official data are available yet on the economy in 2020, preliminary data issued by the authorities indicate that Oman’s nominal GDP has contracted by 3.9% in Q1/2020 (y/y); non-oil activities contracted by over 6%. Inflation has reached negative territory with -0.4% (y/y) in Q2/2020 reflecting weak domestic demand. The sharp drop in oil prices in 2020 will take a heavy toll on public finances. Latest data reveals that total revenues declined by 22% in Q2/2020 (y/y), of which 20% comes from a decline in oil receipts.
The economy is projected to sharply contract by over 9% in 2020, owing to depressed global demand for oil and the pandemic hit to the non-oil sector. The new OPEC+ oil cut agreement is putting significant pressure on the hydrocarbon sector, which is expected to contract by over 12% this year. The non-oil economy also faces significant pressure amid ongoing restrictions, with tourism and hotel sectors are among the hardest hit. Gas field development has been critical to meet growing domestic and global demand, but it is not on a scale that is transformative in its own right. Inflation will likely pick up to around 3% in 2021, reflecting the recovery of domestic demand and the introduction of VAT.