IMF calls for ‘deeper’ fiscal adjustments to sustain growth

Muscat - 

Welcoming the steps taken by the Oman government in recent years to enhance private sector growth, reduce spending, diversify government revenue and improve the business environment, the International Monetary Fund (IMF) has called for a deeper fiscal adjustment to maintain confidence and ensure fiscal and external sustainability in Oman’s economy.

The executive board of the International Monetary Fund has concluded 2019 Article IV Consultation with Oman, according to an IMF statement.

The IMF executive board noted that the economic activity in Oman started to recover last year and that the fiscal and current account deficits improved. ‘Notwithstanding these efforts and the recovery in oil prices, the executive directors indicated that Oman’s public and external vulnerabilities have continued to grow. Given the challenging external environment and regional uncertainty, directors thus called for a deeper fiscal adjustment to maintain confidence and ensure fiscal and external sustainability, coupled with continued structural reforms to diversify the economy, improve productivity and enhance private sector-led growth,’ the IMF said.

The IMF has lowered its Oman GDP growth forecast to 0.3 per cent for 2019 from an earlier estimate of 1.1 per cent, but it expects the sultanate’s economy to record a robust 5.9 per cent growth in 2020.

While welcoming the Omani authorities’ plans to continue with fiscal consolidation, the IMF executive directors called for an expeditious introduction of value added tax (VAT) and measures to adjust government expenditure. They also encouraged the authorities to lay out and implement an ambitious medium-term fiscal adjustment plan, based on reforms to tackle current spending rigidities, streamline public investment, and raise non-hydrocarbon revenue, while prioritising measures that limit the impact on growth and place more of the adjustment on those who can best shoulder it.

The IMF directors commended the sultanate’s ongoing implementation of the Tanfeedh programme with a focus on economic diversification and job creation.

Noting the importance of enhancing fiscal governance and transparency, the IMF directors also suggested that a formal medium-term fiscal framework would help anchor fiscal consolidation and limit implementation risks. ‘In that context, the authorities’ plan to carry out a public expenditure review with the support of the World Bank would be useful.’

The IMF noted that the sultanate’s exchange rate peg to the US dollar had delivered low and stable inflation and remained appropriate. ‘With external buffers, albeit currently adequate, projected to continue to decline, directors noted that the recommended fiscal adjustment would be key to bring the external position more in line with fundamentals, bolster external sustainability, and support the currency peg.’

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