Oman flag Oman: Economic and Political Overview

The economic context of Oman

Economic Indicators

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The Sultanate of Oman has had extraordinary economic development since 2004, primarily due to the exploitation of its oil reserves. Despite Omani authorities' swift attempts to contain the spread of Covid-19 pandemic, social distancing measures took their toll on the economy, which contracted by an estimated 2.8% in 2020, according to latest IMF estimates. Nonetheless, this was much smaller than an earlier projection of 10%, as oil production fell at a slower rate than initially expected. Oman's GDP was again in positive territory in 2021 (+2.5%) and is now expected to recover fully at 2.9% in 2022 and 4.2% in 2023, mainly supported by the oil industry.

Oman has a relatively healthy economic and financial situation. Nonetheless, the government debt expanded to an estimated 81.2% of GDP in 2020 from 60.5% in 2019 amid higher social and health expenditure, and then 68.2% of GDP in 2021. Public debt is expected to decrease to 61.7% in 2022 and 58.4% in 2023. Lower global oil prices, paired with weaker fiscal revenues pulled the current account deficit to 13.7% of GDP in 2020, but Omani authorities aimed to halve the deficit in 2021 through fiscal consolidation measures : it came back to 5.8% in 2021. The value-added tax is expected to be introduced in April 2021, along with an expansion of the excise tax base. Inflation, which was 3% in 2021 and is forecasted to reach 2.7% in 2022 and 2.6% in 2023. Oman's financial soundness indicators were healthy, according to IMF estimates, with banks' liquidity coverage ratio standing around 200% at the end of 2021, considerably higher than legally mandated levels. In a bid to improve management of oil and gas revenues, the government established a new holding company called Energy Development of Oman (EDO). At the same time, in order to decrease its dependence on raw materials, Oman has established reforms to liberalise and diversify its economy in the framework of its “2040 Vision Plan” (continuation of 2020 Vision Plan), which aims to increase investment in the tourism, financial services and port activity sectors. Such reforms are slowly paying off, as confirmed by the fact that non-oil and gas economy now accounts for more than two-thirds of GDP.

According to World Bank, unemployment rate reached 3.2% in 2021, one of the highest level in nearly 30 years. At the same time, roughly half of Oman's youths are unemployed. Besides, nearly two million jobs are taken by migrant workers (National Centre for Statistics). The government introduced initiatives to tackle the high share of expatriate workers, including bans on foreign worker visas, to promote employment of Omani citizens.

Oil price volatility and insufficient fiscal adjustment could worsen the twin deficits and increase gross financing needs. Fiscal consolidation could also give rise to social tensions, thus undermining the reform drive. On the upside, a further rise in oil prices accompanied with a successful implementation of the reforms would improve the outlook (World Bank, 2022).

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 73.9785.87108.97110.79110.45
GDP (Constant Prices, Annual % Change) -3.23.04.44.11.9
GDP per Capita (USD) 1618232322
General Government Gross Debt (in % of GDP) 69.762.945.441.138.1
Inflation Rate (%) -0.91.53.11.92.1
Current Account (billions USD) -12.57-5.216.724.042.84
Current Account (in % of GDP) -17.0-6.16.23.62.6

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Oman has a workforce of 2.67 million out of its 5.1 million population, of whom about 40% are expatriates. The share of expatriate workers has declined in recent years as Oman implemented a visa ban to boost hiring of Omani citizens. Prior to the discovery of oil fields, Oman was virtually a subsistence economy that was entirely based on agriculture and fisheries. Nowadays, the latter contributes only marginally to GDP (3%) and employs 4% of the workforce (World Bank, 2022). Agricultural production is mainly composed of dates, limes, bananas, and owing to the lack of fertile land the country needs to import from international markets.

The industrial sector accounts for 43.6% of GDP and employs 32% of the workforce (World Bank). Its share has increased considerably in the last two decades (employment in industries was as low as 11% in 2000) as Oman increasingly uses enhanced oil recovery techniques and supports mining and manufacturing. The manufacturing sector alone is estimated to contribute to 10% of GDP (World Bank). However, the country is heavily dependent on oil and gas resources, which generate between and 68% and 85% of government revenue on average, depending on fluctuations in commodity prices.

The services sector accounts for 53.4% of GDP and 64% of the workforce (down from 82.4% in 2000). Oil-related activities comprise a significant share of the services sector; however, logistics (maritime transport in particular) and financial activities are growing steadily. Tourism is one of the sectors being developed in order for the Sultanate to build a sustainable non-oil future, and the number of tourists has more than doubled in the last decade (3.5 million in 2019, according to the National Centre for Statistics and Information).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 4.0 32.0 64.0
Value Added (in % of GDP) 2.4 53.7 48.1
Value Added (Annual % Change) 1.9 1.3 -1.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
64,6/100
World Rank:
71
Regional Rank:
7

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Energy and Minerals
Statistical Office
National Centre for Statistics and Information
Central Bank
Central Bank of Oman
Stock Exchange
Muscat Stock Exchange
Economic Portals
Zawya News
Oman Economic Review
Muscat Daily Business News
 

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Latest Update: November 2022

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