An IMF team led by Allison Holland visited Muscat from May 3-16 to hold the 2017 Article IV consultation discussions with Oman.
“We are encouraged by the authorities’ efforts to turn the goals of the ninth development plan into concrete actions through the Tanfeedh implementation process. Successful implementation of these initiatives will boost medium-term growth prospects,” Allison said in a statement released on the IMF website.
She said that improving the business environment by streamlining regulatory processes and increasing the level of vocational skills will support efforts to increase private sector employment. The IMF estimates Oman’s non-oil growth to average about 3.5 per cent over the medium-term.
“We have had constructive discussions with the authorities over the past two weeks. The authorities recognise that the sustained decline in oil prices underscores the need to undertake sustained fiscal adjustment, accelerate economic diversification, and increase the role of the private sector to stimulate the economy,” Allison said in the statement released on Friday.
The IMF expects Oman’s overall growth to remain flat in 2017, as the oil production cuts agreed with OPEC will fully offset the 2.5 per cent growth in the non-oil sector, which is expected to slow due to planned fiscal consolidation.
Allison said Omani authorities have set appropriately ambitious fiscal targets in 2017 budget that would reduce the deficit by almost half to 12 per cent of GDP if achieved. “Steadfast implementation of the budget will protect policy credibility and sustain investor confidence, which has underpinned Oman’s access to international financing at favourable terms over the past year.”
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, she said, adding that Oman’s current account deficit, estimated at 17 per cent of GDP in 2016, is also expected to decline.
“The authorities and the IMF team agreed that to maintain fiscal sustainability and support the exchange rate peg over the medium to long term, additional fiscal adjustment beyond the measures that are already in the pipeline will be needed. The team encouraged the authorities to anchor the proposed adjustment in a medium-term fiscal framework, and recommended that additional measures could include phasing out remaining subsidies, restraining government expenditures-both recurrent and capital, and increasing non-oil revenues further,” Allison said.
She added that the IMF team advised the authorities to continue to 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.
On banking sector, Allison said that Omani banking system remains well capitalised, deposits have increased, liquidity conditions appear to have eased, and credit to the private sector continues to grow.
“Interest rates are likely to increase as US monetary policy tightens further. Gross reserves of the Central Bank of Oman increased in 2016 from US$17.5bn to US$20.3bn and are considered adequate for a number of metrics. The exchange rate peg to the US dollar continues to serve Oman well given the current structure of the economy,” she added.