MUSCAT: The International Monetary Fund (IMF) Thursday recommended that Oman restrain government expenditures and increase non-oil revenues further, as economic growth dropped from 4.2 percent in 2015 to around 3 percent in 2016.
Non-hydrocarbon growth, due to low oil prices, slowed from 4.2 percent to 3.4 percent.
“We expect overall growth will remain flat in 2017, as the oil production cuts agreed with OPEC will fully offset the 2.5 percent growth in the non-hydrocarbon sector, which is expected to slow due to planned fiscal consolidation,” the IMF said following its Article IV consultation in the country.
Oman has already “set appropriately ambitious fiscal targets in the 2017 budget that would reduce the deficit by almost half to 12 percent of GDP if achieved,” the IMF noted.
But it also advised that Muscat anchor its proposed fiscal adjustment “in a medium-term fiscal framework,” and also phase out remaining subsidies.
This would help support the exchange rate peg over the medium to long term, the IMF said.
Oman must further “strengthen their framework for debt and asset management to ensure financing needs are effectively managed, while further fiscal reform would also help limit borrowing costs,” Thursday’s review said.
“Over the medium term, timely implementation of the increase in corporate income tax and planned introduction of value-added tax (VAT) and excise duties will underpin a continued improvement in the fiscal position,” the IMF affirmed.
Improving the business environment, “including by streamlining regulatory processes and increasing the level of vocational skills, will support efforts to increase private sector employment,” the review advised.
And while inflation is expected to increase in 2017 reflecting an expected increase in imported food prices and the continued impact of subsidy reforms, “it should moderate subsequently,” the IMF said.
There was good news for the Omani banking system, as it remains well capitalized, the review showed.
“Deposits have increased, liquidity conditions appear to have eased, and credit to the private sector continues to grow,” the IMF said.
“Gross reserves of the Central Bank of Oman increased in 2016 from USD 17.5 billion to USD 20.3 billion and are considered adequate on a number of metrics.”
