“In sharp contrast to the economic contraction in 2015 and 2016, Oman’s economy is expected to grow at three per cent in 2018, as major recovery in oil prices take hold and the government’s fiscal reforms and efforts for economic diversification begin to bear fruit,” Sheikh Khalid Muhammad al Zubair said in his speech at the Oman Economic Forum.
He said that Oman's twin deficits are shrinking fast this year after the sultanate ran large deficits in 2015 and 2016. “The budget deficit widened to RO5.3bn (22 per cent of GDP) in 2016, which has come down to RO3.5bn (13 per cent of GDP) in 2017 and budgeted to decline further to RO3bn (ten per cent of GDP) in 2018. The budget deficit is likely to shrink materially over the next three years.”
“Similarly, the current account deficit stood at 18.8 per cent in 2016. As the value of our oil exports surge again, the current account deficit will likely reduce to just three-four per cent of GDP by the end of 2018,” Zubair added.
The Ominvest chairman noted that Oman’s 2018 budget is based on an average oil price of US$50 per barrel. “The good news is that so far this year Omani oil has averaged at US$65 per barrel – 25 per cent above the 2017 average of US$52 per barrel. If the oil prices stabilize around the current levels, it will have a major positive impact on Oman’s key economic indicators and the future outlook.”
He further added that the budget deficit will narrow to low single digits (between three-four per cent of GDP) or perhaps totally disappear if Omani crude averages around US$70 per barrel, which is Oman’s fiscal breakeven point.
Speaking about the Central Bank of Oman's (CBO) recent policy initiatives and regulatory amendments, Zubair said the policy initiatives by the central bank will boost Oman's banking system and the private sector. “We believe that the CBO’s recent measures will serve as an additional catalyst, boost credit growth, enhance liquidity flows and help the private sector to more aggressively borrow and invest to create jobs.”
He said that the GCC countries' currency pegs with US dollar stay strong. “With a significant rebound in oil prices supporting the GCC economies and Saudi Arabia, Qatar and Oman continue to heavily and confidently borrow from international markets in US dollar, we believe that there is no immediate risk to the GCC peg with US dollar. It will always be coordinated well among the GCC members as a joint policy issue. Omani riyal's position has also strengthened considerably in the forward foreign exchange market over the past few months. We think Omani riyal will do just fine,” Zubair said.
At the Oman Economic Forum, Zubair also talked about the large-scale investment opportunities available in the sultanate through public-private partnerships (PPP). In order to achieve higher and sustainable growth, he said Oman has embarked on the National Program for Enhancing Economic Diversification (Tanfeedh).
He noted that the Tanfeedh programme entails investing around US$45bn in key non-hydrocarbon sectors. “Under Tanfeedh, the public sector is expected to provide around US$7bn as seed-capital, while the remaining US$38bn is coming from the private sector.”