However, the accountancy and finance body on Wednesday said the weak domestic demand continues to weigh on non-oil activity in the sultanate, posing a downside risk to the expected 3.6 per cent GDP growth for 2018, while the overall pace of expansion is expected to slow to 2.9 per cent in 2019.
In its Economic Insight: Middle East Q4 2018 report, ICAEW said that the turnaround in the oil prices has facilitated an increase in spending, alleviating some pressure on activity. ‘Nonetheless, with oil output rising only modestly so far, the space for government stimulus remains constrained in the context of still significant fiscal imbalances. The budget deficit is expected at a still wide 6.5 per cent of GDP in 2018 as a whole, albeit down from 13.8 per cent of GDP in 2017.’
ICAEW said despite a 25 per cent year-to-date increase in Oman’s budget revenue, the government continues to borrow to finance spending as evident by its US$1.5bn issue in sukuk, which is the second this year, following the US$6.5bn sovereign bond issue in January 2018.
Maya Senussi, ICAEW economic advisor and senior economist for Oman at Oxford Economics, said, “The strengthening in the hydrocarbon output is helping to cut the fiscal and current account deficits but this is not sustainable. Oman needs to make substantial reforms if it is to get its economy onto the right track. A plan to introduce new taxes will help to bring down the deficit but it’s crucial to undertake a social impact analysis and bring in measures to protect vulnerable households before making any big changes.”
The report said that the introduction of value added tax (VAT) on the horizon implies purchasing power will remain constrained in 2019, as inflation rises to 2.7 per cent year-on-year, from a projected 1.1 per cent this year. Moreover, private sector credit growth has slowed in recent months, even as lending rates have remained stable, posing a further headwind to spending in the coming months, it added.
According to the report, the GCC governments are expected to benefit from a combination of higher oil prices and elevated oil production levels.