20210911-IMF-Oman_2021_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Oman_93页_10mb

2021 Article IV Consultation with Oman Summary

Core Content

The 2021 Article IV consultation with Oman, conducted by the IMF, assessed the country's economic performance, outlook, and policy framework. The consultation took place virtually between May 24 and June 7, 2021, with the staff report finalized on July 22, 2021. The IMF Executive Board concluded the consultation on August 25, 2021, and endorsed the staff's appraisal of the economic situation and policy recommendations.

Key Economic Indicators

Main Points of the Consultation

Economic Impact of Shocks

• The Omani economy was severely impacted by the pandemic and oil price collapse in 2020.
• Overall and non-hydrocarbon GDP contracted by 2.8% and 3.9%, respectively.
• Inflation turned slightly negative in 2020, but is expected to rise to 3% in 2021 due to VAT introduction and recovery in demand.

Fiscal and External Position

• The fiscal deficit widened to 19.3% of GDP in 2020, but is expected to decline to a surplus of 0.9% in 2022.
• Central government debt rose to 81.2% of GDP in 2020, but is projected to decline to 51.9% by 2025.
• The current account deficit is expected to narrow to -6.2% in 2021 and -0.6% in 2026.

Structural Reforms and Economic Diversification

• Oman has committed to Oman Vision 2040, aiming to diversify the economy and strengthen public administration.
• Structural reforms have been accelerated to boost non-oil private sector growth and create jobs.
• Labor market flexibility and SOE reforms are emphasized to improve competitiveness and public resource efficiency.

Financial Sector

• The financial sector remains resilient, with high capital and liquidity buffers.
• Non-performing loan (NPL) ratio increased to 4.2% in 2020, but loan moratoria helped limit the impact.
• Interest rates and deposit rates have not fully reflected the lower policy rates.

Monetary Policy

• The exchange rate peg to the U.S. dollar is considered appropriate, supporting low and stable inflation.
• Monetary conditions eased through lower interest rates and liquidity injections.
• Borrowing spreads declined after an initial spike, with two international bond issuances in 2021.

Risks and Uncertainties

• Downside risks dominate the outlook, including the prolonged impact of pandemic variants, tightening global financial conditions, and volatility in oil prices.
• Public debt is vulnerable to shocks in GDP growth, exchange rates, primary balance, and interest rates.
• A substantial decline in oil prices would increase gross financing needs and negatively affect the non-hydrocarbon sector.

Key Policy Recommendations

Near-Term Policies

• Continue targeted support for affected sectors and households until recovery is fully entrenched.
• Monitor asset quality and provide support to distressed but viable borrowers.
• Avoid measures that jeopardize medium-term fiscal consolidation.

Fiscal Policy

• Steadfast implementation of the Medium-Term Fiscal Balance Plan (MTFP) to reduce debt and improve intergenerational equity.
• Enhance public sector transparency and governance.
• Establish a clear fiscal anchor and expand fiscal coverage beyond the central government.

Monetary and Financial Policies

• Maintain the exchange rate peg to support financial stability.
• Carefully manage the sovereign-bank nexus to ensure banking system resilience.
• Strengthen the debt management office and sovereign asset and liability management framework.

Structural Policy

• Improve labor market flexibility to promote employment in the private sector and increase female participation.
• Reform state-owned enterprises (SOEs) to enhance competition and efficiency.
• Create an enabling business environment and invest in a greener economy.

Conclusion

The IMF Executive Board agreed with the staff appraisal and commended the Omani authorities for their swift and coordinated response to the pandemic. The next Article IV consultation is expected to follow the standard 12-month cycle. The report highlights the importance of continued fiscal consolidation, external sustainability, and structural reforms to ensure long-term economic stability and growth.