Oman’s Economic Outlook- Fall 2016

Slower economic growth estimated in 2016 is a reflection of lower oil sector investment coupled with the knock-on effects of lower public spending. Significant fiscal consolidation efforts have led to fiscal savings, but the deficit remains high. Low oil prices have also widened the current account deficit despite higher export volume. Oman continues to resort to its reserves and to borrowing. The projected uptick in oil prices and expansion of the non-oil economy will improve the macroeconomic outlook.

Overall real GDP growth is projected to slightly recover over the medium term, reaching 3.4% by 2018, as a gradual recovery of oil prices improves confidence and encourages private sector investment. This will be further supported by the new foreign ownership law and liberalization in aviation. Oman is expected to focus its infrastructure investment in tourism and logistics. Continued fiscal austerity measures and revenue mobilization, combined with higher oil prices, will allow the budget deficit to further narrow to 10% of GDP in 2018. But with further bond issuances in the pipeline, debt is likely to rise dramatically. Trade and investment opportunities with Iran are expected to increase as the sanctions are lifted. The current account deficit is projected to remain high at 19.5% in 2017 but should narrow as oil prices rise, non-oil exports grow, and the gas pipeline with Iran increases LNG exports. Cost push pressures from rising global food prices and subsidy reform are expected to increase inflation to 2.8% by 2018. Oman is expected to maintain its peg to the US dollar.

Download full report