Oman’s economy likely shrank 6.4 percent in 2020, the International Monetary Fund said on Friday, due to the coronavirus crisis and low oil prices putting a strain on the state’s coffers.
That would be a narrower contraction than the 10 percent fall the IMF forecast for Oman last year. But the sultanate’s economy was still hit hard, with its non-hydrocarbon GDP estimated to have reduced by 10 percent.
The construction, hospitality, and wholesale and retail trade sectors experienced the heaviest toll, the fund said, while inflation turned slightly negative, owing to less demand.
The IMF forecast a 2020 global contraction of 4.4 percent in its last World Economic Outlook, an improvement over a 5.2 percent contraction predicted in June 2020, but said it was still the worst economic crisis since the 1930s Great Depression.
Countries in the oil-rich Gulf suffered the double shock of the COVID-19 pandemic, which dampened demand in the non-oil economy, and low oil prices, which have been hurting revenue.
Oman’s fiscal deficit widened to 17.3 percent of gross domestic product (GDP) and was financed by external bond issuance, drawdown of deposits and sovereign funds, and privatization proceeds, the Fund said.
“As a result, central government debt rose to 81 percent of GDP, from 60 percent in 2019,” it said.
The IMF said a modest recovery of 1.8 percent was anticipated for 2021, with more growth expected over the medium term, despite continuing uncertainty.
The vaccine roll-out campaign and the easing of social distancing restrictions meant a mild recovery of 1.5 percent was projected for non-oil GDP growth in 2021, rising to 4 percent by 2026.
The Fund said that a successful implementation of Oman’s fiscal adjustment plans “is key to reinforcing fiscal sustainability and alleviating financing pressures”.
Those plans include the introduction of a 5 percent value added tax this year and envisage a personal income tax on high-income earners, a first in the Gulf.
The Fund also recommended the development of a sovereign asset and liability management framework, given eroding financial buffers and rising contingent liabilities.
As public debt rises and foreign assets decline, “it will be important to manage potential mismatches in the financial characteristics of sovereign assets and liabilities to safeguard the sovereign balance sheet from risks of interest rate and exchange rate fluctuations,” the Fund said.