debt levels. Public debt-to-GDP rose to OMAN an estimated 51 percent in 2018, from 47 Recent developments percent in 2017. External debt is estimat- ed to remain high at 88 percent of GDP in Oman’s real GDP growth is estimated to 2018. This has led to a series of credit have recovered to 2.1 percent in 2018, rating downgrades. Table 1 2018 from a contraction of 0.9 percent in 2017, Lack of jobs remains the primary concern P o pulatio n, millio n 4.8 as oil prices and strong non-oil growth amongst young Omanis. The country has a GDP , current US$ billio n 82.2 helped offset the impact of fiscal consoli- fast-growing population and over 40 per- GDP per capita, current US$ 17017 dation. The non-oil economy is supported cent of the population is under the age of a by the ongoing diversification efforts and 25. Oman’s cabinet made a pledge in Octo- Scho o l enro llment, primary (% gro ss) 108.6 Life expectancy at birth, years a 77.0 rising activity in key sectors including ber 2017 to create 25,000 jobs for Omanis, tourism, transport and manufacturing. the most recent example of such pledges. Source: WDI, M acro Poverty Outlook, and official data. Notes: Inflation slowed to an average of 0.9 per- However, only 13,000 nationals have been cent in 2018, from 1.6 percent in 2017, due employed since then, reflecting absorption (a) M ost recent WDI value (2016) to lower food prices. constraints in the public and large corpo- While narrowing, Oman fiscal deficit re- rate sectors. In January 2018, the govern- mained high in 2018 despite the oil price ment also banned the recruitment of expat- recovery. The fiscal deficit is estimated to riate employees by the private sector in ten have improved from 13 percent of GDP in sectors, contributing to the reduction in the Growth is estimated to have recovered to 2017 to 7.7 percent of GDP in 2018, as number of expatriates in Oman by 3.4 per- 2.1 percent in 2018, supported by rising higher oil prices boosted oil revenues and cent between October 2017 and 2018. This a corporate tax brought in new non-oil mirrors trends seen in other GCC countries. non-hydrocarbon activity and higher oil revenues. Despite higher than expected oil output. However, the December 2018 revenue, the budget was overspent by 6 OPEC+ agreement to cut oil production will dampen this recovery in 2019, as percent due to increased investment in development projects, high electricity sub- Outlook sidies and debt servicing costs. growth is projected to slow to 1.2 percent. While the current account deficit im- Growth is projected to slow to 1.2 percent in While narrowing, fiscal and current ac- proved in 2018, it remains high at an esti- 2019 as Oman’s commitment to the Decem- count deficits remain high, and debt ratios mated 6 percent of GDP. Increased private ber 2018 OPEC+ output cut constrains oil continue to worsen. The main risks to the and public investments contributed to the production. There will be a once-off spike in economic outlook arise from a delay in increase in the CA deficit. Foreign re- growth to 6 percent in 2020 as the govern- serves continued to decline (and were ment plans to significantly increase invest- fiscal adjustment, which will impede debt used to finance the BOP deficit); from ment in the Khazzan gas field. The potential reduction and negatively affect business US$20 billion in 2016 (or 7 months of im- boost from the diversification investment confidence and external financing costs in ports) to an estimated US$17 billion in spending would continue supporting an adverse global environment. 2018 (or 5.7 months of imports). growth in 2021 and the medium term. Infla- Oman’s persistently large fiscal and current tion is expected to pick up to 1.5 percent in account deficits have resulted in higher 2019 reflecting higher consumer spending, FIGURE 1 Oman / Real annual GDP growth FIGURE 2 Oman / General government operations Percent cha nge Percent cha nge Percent of GDP Percent of GDP 7.0 6.0 0.0 60.0 6.0 5.0 5.0 50.0 -5.0 4.0 4.0 3.0 40.0 3.0 -10.0 2.0 2.0 30.0 1.0 1.0 -15.0 0.0 20.0 0.0 -1.0 -20.0 10.0 -2.0 -1.0 -3.0 -2.0 -25.0 0.0 2015 2016 2017 2018 2015 2016 2017 2018 Hydrocarbon GDP Non-Hydrocarbon GDP Overall Fiscal balance Total expenditure (RHS) Real GDP (RHS) Total revenue (RHS) Sources: Government of Oman and World Bank staff estimates. Sources: Oman authorities; World Bank; and IMF staff projections. MPO 168 Apr 19 and to further accelerate to an average of prices and export volumes. External financ- hurting investor confidence and prospects about 3 percent in the period 2020-2021 ing needs will put more pressure on re- for debt sustainability. To mitigate this reflecting the possible introduction of indi- serves, which are forecasted to reach less risk, the government needs to press ahead rect taxes beyond 2019. The budget deficit is than 5 months of imports. with planned reforms on revenue mobili- projected to rise to 12 percent of GDP in Although narrowing, persistent high fiscal zation (namely the introduction of VAT), 2019 due to high public spending amid deficits would raise the public debt-to- deeper fiscal adjustment through wage lower oil prices. The 2019 budget assumes a GDP ratio to 67 percent by 2020. External bill and subsidy reform, and more effi- 3 percent increase in total expenditure com- debt is projected to further increase to 100 cient public sector delivery. Fiscal slip- pared to 2018. The introduction of excise percent of GDP from 2019 and beyond. pages and lower oil prices would result in and VAT taxes has been delayed to 2020 or External debt issuance and the State Gen- higher fiscal and current account deficits, beyond. Further spending restraints and eral Reserve Fund drawdowns will re- a deterioration in government and exter- VAT implementation combined with a main key to fiscal financing, notwith- nal debt trajectories and increase the cost build-up of revenues from the Khazzan gas standing progress on privatization and of external financing. A larger drain on field would bring the fiscal deficit down to asset sales. external buffers could also reduce inves- projected 8.6 and 6.4 percent of GDP in 2020 tor confidence and result in further sover- and 2021, respectively. The planned intro- eign rating downgrades and higher fi- duction of the VAT and excise taxes should raise non-oil revenues to an average of 8 Risks and challenges nancing costs. Job creation is an im- portant challenge, given the 49 percent percent of GDP in 2019-2020. The current youth unemployment rate. account deficit is forecasted to increase to 10 A key risk facing Oman is that the pace of percent of GDP in 2019 due to lower oil fiscal and structural reforms may slow, TABLE 2 Oman / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2016 2017 2018 e 2019 f 2020 f 2021 f Real GDP growth, at constant market prices 5.0 -0.9 2.1 1.2 6.0 2.8 Private Consumption 5.2 0.9 1.3 1.2 1.0 2.7 Government Consumption -9.7 -0.7 0.3 0.4 0.5 1.3 Gross Fixed Capital Investment 16.5 -3.9 0.6 3.3 3.4 3.8 Exports, Goods and Services -2.8 12.9 4.4 5.4 4.8 5.0 Imports, Goods and Services -12.0 10.2 4.1 4.5 4.0 4.9 Real GDP growth, at constant factor prices 5.0 -0.9 2.1 1.2 6.0 2.8 Agriculture 8.3 9.0 9.1 9.5 7.0 8.2 Industry 4.6 -2.5 -0.9 2.8 2.7 3.1 Services 5.5 1.0 6.2 -1.3 10.5 2.1 Inflation (Consumer Price Index) 1.1 1.6 0.9 1.5 1.8 3.8 Current Account Balance (% of GDP) -18.7 -15.3 -5.7 -10.3 -6.1 -4.9 Fiscal Balance (% of GDP) -21.2 -12.9 -7.7 -12.2 -8.6 -6.4 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. MPO 169 Apr 19