IMF Expects Oman's Debt, Deficit to Slide sharply after Pandemic Shock 

Oman's debt and fiscal deficit are expected to slide sharply after spiking last year, as the state implements a medium-term plan to fix finances hit by the COVID-19 pandemic and low oil prices, according to the International Monetary Fund (IMF) report.

IMF added that the Omani economy was hit by a dual shock of the pandemic and a collapse in oil prices in 2020, where overall GDP is estimated to have contracted by 2.8%.

"Labor market adjustment was facilitated by temporary wage cuts and a reduction in expatriate employment. The economy is set to recover in 2021, with non-hydrocarbon GDP growth of 1.5% as vaccine rollout gradually restores domestic activity along with the recovery of external demand. Oil production is projected to increase after the current OPEC+ agreement expires in April 2022. Inflation has been subdued."

"The fiscal deficit and government debt rose sharply in 2020 but are projected to improve considerably over the medium term with the implementation of the authorities’ Medium-Term Fiscal Balance Plan. The fiscal deficit widened to 19.3% of GDP in 2020, partly reflecting non-policy factors (notably the contraction in nominal GDP). It is projected to decline to -2.4% in 2021 and a surplus in 2022."

"Central government debt rose to 81.2% of GDP, with financing needs covered by domestic and external borrowing and asset drawdown, but is expected to decline sharply over the medium term."

The fund noted that fiscal consolidation and higher oil prices are projected to narrow the current account deficit to -6.2% in 2021 and -0.6% in 2026.

The IMF pointed out that COVID-19 variants would prolong the impact of the pandemic, and slow recovery., adding that Oman's public debt remains vulnerable to risks, particularly from oil market developments and shocks to GDP growth, the exchange rate, primary balance, and interest rates.

However, the fund commended the Omani authorities’ swift and well-coordinated policy actions to address the health and economic effects of the COVID-19 pandemic.

"Incomplete adjustment to the lower oil prices since 2015, and the twin shocks of the pandemic and the collapse in oil prices in 2020 amplified fiscal and external vulnerabilities. In this context, Directors welcomed the authorities’ strong commitment to implementing the Medium-Term Fiscal Balance Program to contain expenditure, reduce the dependency of revenue on hydrocarbon prices, and put debt on a firm downward path."

The exchange rate peg to the dollar remains an appropriate policy for Oman, helping to keep the inflation under control.

The IMF welcomed recent progress in structural reforms aiming at boosting non-oil sector growth and supporting external sustainability, asserting that priority should be given to flexibility in the labor market, promotion of private sector employment, and encouraging female labor participation.