Oman: Solid growth in 2019, but debt issues too

The IMF’s 2019 growth forecast would make Oman the fastest growing GCC economy, followed by Kuwait and the UAE. But falling FX reserves and a rise in the debt-to-GDP ratio persist, suggesting ongoing strains in the macro environment, and little to reassure credit rating agencies. These are reflected in the Omani government’s forecast for growth of 3% for 2019. Growth is projected to bounce back to its 2016 level of 5% in 2019, rising from 2018’s 1.9% and the mild contraction of 2017, according to the IMF. The recovery will be driven by the non-oil sector following completion of major infrastructure projects. The IMF expects inflation at 3.2% next year, a jump from 1.5% in 2018, driven by stronger consumer confidence.

Foreign reserves stood at USD 15.8B by October 2018. This translates to about 5 months of import cover with a similar range expected for 2019. In addition, the State General Reserve Fund and Oman Investment Fund collectively have about USD 32B. Debt as a share of GDP will ease somewhat with projected GDP growth, but is still three times as high as it was in 2015 before Oman ended a two-decade absence from international capital markets.

The 2019 budget points to efforts by the government to accelerate growth in the non-oil economy through greater emphasis on economic diversification, coupled with the implementation of quick-win initiatives proposed under the National Program for Enhancing Economic Diversification (Tanfeedh). The budget includes allocations for the five sectors identified by Tanfeedh: manufacturing, logistics, tourism, fisheries and mining.  The government acknowledges that revenues from these sectors depend significantly on private sector investment and, accordingly, is seeking to improve the business environment, including by emphasising foreign and domestic investment. The budget is designed to maintain the level of priority social services for citizens. These include services within the education, healthcare, housing and social welfare sectors, which account for 36% of 2019 budget expenditures. Public sector recruitment of nationals, and training via the National Training Fund will continue in 2019, with plans to train 6,000 nationals, and the allocation of 5,000 public sector job opportunities. Separately, USD 10B has been set aside for investment spending, including USD 3B allocated for infrastructure projects in the 2019 state budget.

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