According to ICAEW’s ‘Economic Insight: Middle East Q2 2019’ report, Oman’s economy is still in the early stages of recovery and is expected to experience modestly weaker growth of 2.8 per cent this year, down from an estimated 3.3 per cent in 2018 but up from the 0.9 per cent drop in 2017.
The report, produced in partnership by ICAEW and Oxford Economics, said oil prices have again become less supportive for Oman’s economic outlook as the current oil price forecast stands at US$67 per barrel for 2019, 5.6 per cent below the 2018 average. This, alongside lower oil production levels, should drive down oil revenue, which contributes about 60 per cent of total budget revenue.
According to the report, both domestic demand and the external sector face persistent headwinds, the latter reinforced by the fractious US-China trade relations. Renewed pressure on oil prices complicates fiscal adjustment, as the overall thrust of policy remains expansionary. Additionally, the ramp-up in gas output over the past 18 months has partly compensated for lower oil production, cushioning oil sector performance.
Despite being a non-OPEC country, Oman has adhered to the OPEC+ oil quotas, cutting output to just above 970,000 barrels per day (bpd) in January-April, 25,000 bpd below the average for the fourth quarter of 2018. It is looking increasingly likely that the current round of cutbacks will be extended into the second half of 2019, which would further weigh on the contribution of the oil sector to GDP growth this year. Looking ahead, natural gas exploration will be a more significant driver of oil sector growth.
Maya Senussi, ICAEW economic advisor and senior economist for Middle East at Oxford Economics, said, “The slump in oil prices has put significant pressure on Oman in the last year – oil revenue still amounts to 60 per cent of the nation’s total budget revenue. There is a dire need for an improvement in the non-oil sector and delaying the introduction of VAT has had a significant effect on the fiscal deficit. Oman must continue with its economic diversification efforts to drive growth in its economy.”
According to ICAEW, non-oil activity in Oman remains tepid, though it should improve, anchored by economic diversification efforts and infrastructure spending under the country’s Vision 2020 plan. Despite increased state spending, domestic demand remains under pressure, reflected in slowing private sector credit uptake.