by 30 percent to an estimated 13.3 percent OMAN of GDP in 2017 (from 20.6 percent of GDP Recent developments in 2016). Oman raised US$5 billion from international debt markets and US$2 bil- Growth in Oman was subdued in 2017 lion from sukuk to finance its fiscal needs due to lower oil production and weaker in 2017. Foreign borrowing has been criti- Table 1 2017 consumption and investment. Real GDP cal in easing the strain on reserves given Population, million 4.9 growth is estimated to have slowed down the structural large negative items on the GDP, current US$ billion 73.7 to 0.7 percent in 2017, compared with 5.4 current account. GDP per capita, current US$ 15121 percent in 2016, which was driven by rec- The main social concern for Oman is the School enrollment, primary (% gross) a 109.3 ord high oil production levels (1 million lack of jobs and the adverse effects of sub- Life expectancy at birth, years a 77.1 bd). In 2017, Oman joined most OPEC non sidy reform on vulnerable households. -members in oil production cuts, leading The most recent ILO estimate of unem- Source: WDI, Macro Poverty Outlook, and official data. to a contraction of the hydrocarbon sector ployment was 17 percent in 2017, while Notes: by 3 percent. Private consumption, alt- youth unemployment is approximately 49 (a) Most recent WDI value (2015) hough dampened due to fiscal austerity, is percent—a pressing challenge in Oman estimated to be the main driver of growth where over 40 percent of the population is in 2017. The current account deficit is esti- under the age of 25. In January 2018 the mated to have improved to 11.7 percent in authorities launched an initiative to pro- 2017 from 18.4 percent of GDP in 2016 on vide 25,000 new jobs in the private sector the back of higher oil prices. Oman has and stopped issuing visas to expats for also benefitted from the ongoing Gulf certain professions. The government an- Real GDP growth in 2017 remained sanctions on Qatar through the re-routing nounced mitigation measures to support of trade by Qatar away from Saudi Arabia the vulnerable population in 2018; (1) it broadly flat due to Oman’s participation and the UAE [to Oman]. Given its peg to will allocate 100 million rials (US$260 mil- in the OPEC+ oil production cuts and the US Dollar the Central Bank of Oman lion) to support needy households, (2) a fiscal austerity. The current account defi- implemented a gradual rate increase to new fuel subsidy scheme where house- cit has narrowed but remains large. Simi- match the US Fed hikes. Inflation in- holds with an income below 600 rials will creased slightly from 1.1 percent in 2016 to receive 200 liters of petrol per month at a larly, the fiscal account deficit is estimated 1.5 percent in 2017 reflecting the ongoing subsidized rate. to have narrowed in 2017, and partially subsidy reform. financed through external borrowing— Fiscal outturns indicate that Oman is on leading to rapidly rising debt. The outlook course to narrow its fiscal deficit in 2017 on the back of stronger oil revenue and Outlook is set to improve as growth picks up fol- lower expenditure. Savings came from lowing a boost in oil and gas and from higher utility tariffs on large customers Economic growth is set to modestly recov- expected gains in the non-oil sector re- and lower defense spending. Overall, the er over the medium term. In 2018, a boost sulting from the government’s economic government, which has had the biggest in the hydrocarbon sector is expected to diversification plan. fiscal deficit in the GCC in the past two drive the recovery as the Khazzan gas years, managed to cut the budget deficit production expands. In the outer years, as FIGURE 1 Oman / Real Annual GDP growth FIGURE 2 Oman / General Government Operations (in per- cent of GDP) % change % change 6.0 0 60 6 5.0 50 -5 4 4.0 40 -10 2 3.0 30 -15 0 2.0 20 -2 -20 1.0 10 -4 0.0 -25 0 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 Hydrocarbon GDP Non-Hydrocarbon GDP Overall Fiscal balance Total expenditure (RHS) Total revenue (RHS) Sources: Omani Authorities, World Bank Staff estimates. Sources: Omani Authorities, World Bank Staff estimates. MPO 1 Apr 18 the “OPEC plus” restrictions on oil supply and higher corporate income tax, pro- government's ability to create jobs. The are lifted and as the gradual recovery of pelled by higher economic growth are long-term solution needs to be based on a oil prices improves confidence and en- expected to narrow the fiscal deficit to 9.1 more fluid labor market and improve- courages private sector investment, GDP percent by 2020. Oman’s sovereign wealth ments in business climate and education growth is projected to rebound to 2.9 per- funds, partially used to finance fiscal defi- system tailored for the needs of the econo- cent by 2020. Over the longer term, pro- cits since 2014, are estimated at US$24 my. business reforms such as foreign owner- billion. However greater reliance on for- The overall economic outlook is vulnera- ship, FDI, SME support and PPP laws are eign borrowing will raise public debt to ble to several risks. If the planned consoli- expected to increase trade and investment. over 50 percent of GDP by 2020 from 34 dation does not materialize, the govern- A further impetus to growth will be pro- percent in 2016. The current account defi- ment’s fiscal policy risks losing credibility vided by rising natural gas exports from cit is projected to improve to 8.2 percent with negative consequences for financing. the seven-year natural gas supply deal by 2020 as oil prices rise, non-oil exports External risks include a collapse in the signed between BP and Oman LNG. Mon- grow, and as both the Miraah solar plant OPEC deal which could send oil prices etary policy will remain tight as interest and the construction of a new US$600m back down, and US interest rate hikes. The rates continue to rise. Owing to the hike in oil terminal in Sohar make more crude oil possible weakening of the US Dollar could electricity tariffs and the VAT, inflation is available for export. raise import costs and deteriorate the ex- expected to inch up to 3 percent in 2019 ternal balance. A continued slowdown in before moderating in 2020 as cost push China, Oman’s main trading partner, pressures from subsidy reform dissipate. The approved budget for 2018— deficit of Risks and challenges would add to downside risks. Financing conditions may become more challenging OMR3 billion (US$7.8 billion) and 10 per- given the expansion in debt, especially if, cent of projected GDP— indicates an ex- Inclusive economic growth hinges on the with higher U.S. rates, investor sentiment pansionary fiscal policy. The introduction timely implementation of diversification shifts away from emerging markets. These of the GCC-wide 5 percent VAT has been reforms, but fiscal strain continues to de- stresses are already evident in several postponed to 2019, so higher revenues in lay development spending envisaged un- ratings downgrades, most recently by 2018 will come from, in addition to higher der the 9th Development Plan. The gov- Moody’s. oil revenues, higher corporate income tax, ernment is looking towards increasing excises and the privatization of public PPPs which are currently hampered by companies. In January 2018, Oman issued falling investor confidence in the region. US$6.5 billion in a triple-tranche of sover- Moreover, with a rapidly rising popula- eign bonds, its largest issuance ever, to tion, social pressures will continue to plug 2018 financing needs. Over the medi- mount if the private sector fails to provide um term, the recovery in oil prices, VAT enough jobs and fiscal constraints limit the TABLE 2 Oman / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 e 2018 f 2019 f 2020 f Real GDP growth, at constant market prices 4.7 5.4 0.7 2.3 2.5 2.9 Private Consumption 2.9 1.9 1.5 2.5 3.0 3.0 Government Consumption 0.8 -2.2 -3.2 0.9 1.7 2.3 Gross Fixed Capital Investment -0.4 9.4 4.4 3.0 3.4 3.9 Exports, Goods and Services -9.4 2.3 -1.6 2.5 3.0 3.2 Imports, Goods and Services -3.2 -1.5 -1.1 2.3 3.5 3.5 Real GDP growth, at constant factor prices .. .. .. .. .. .. Agriculture .. .. .. .. .. .. Industry .. .. .. .. .. .. Services .. .. .. .. .. .. Inflation (Consumer Price Index) 0.1 1.1 1.5 2.2 3.0 2.8 Current Account Balance (% of GDP) -15.5 -18.4 -11.7 -10.4 -9.2 -8.2 Fiscal Balance (% of GDP) -17.5 -20.6 -13.3 -11.3 -10.1 -9.1 Source: W orld Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. MPO 2 Apr 18 MPO 3 Apr 18