Oman - Economic overview and Infrastructure Projects Report
Oman's Current Economic Situation
Oman’s private sector development is heavily reliant upon government expenditures to expand. But like other oil producing countries in the region, Oman’s budget has been impacted by the reduction in worldwide oil prices, hindering its ability to fund major infrastructure projects across the country. Construction accounts for approximately 8 percent of Oman’s GDP, and BMI Research predicts Oman’s construction sector to post this year its slowest growth since 2000.
Moreover, while Oman produces and exports much less oil and gas relative to other GCC countries, the hydrocarbon sector accounted for 47.2 percent of GDP in 2014 and 33.9 percent of GDP in 2015. The sector also accounted for 78.7 percent of government revenues in 2015. Oman does not have significant foreign exchange reserves, which amounted to USD 17.5 billion at the end of 2015, placing it in a relatively weaker position to withstand low oil prices compared to other GCC countries.
The recent OPEC deal to curb oil production is a positive development for Oman. The country has also pledged to cut production by 45,000 bpd effective Jan 1, 2016, which is expected to result in a net increase in revenues. Still, pressure has grown to enact economic reforms, while enhancing private sector investment to fund critical projects. The national deficit in the budget reached USD 11.4 billion during the first eight months of 2016 and expected to remain at a similar level over the coming years.
In response to volatility in the oil market and to address the deficit, Oman’s Finance Ministry is likely to cut spending by 5 percent in 2017 and does not anticipate additional revenues. The draft budget for 2017 assumes a conservative oil price of USD 45 per barrel. KPMG Oman highlighted that from 2015 to 2016, defense and security spending was cut by 8 percent; oil and gas expenditure cut by 14 percent; development spending cut by 18 percent; and subsidies reduced by 64 percent. The efforts to reform the economy are likely to continue amid volatility in oil prices.
The Omani government has followed a series of five-year development plans as its strategy for economic growth. Most recently, Oman released its Ninth Five-Year Plan (2016-2020)—the final part of the government’s long-term development strategy known as Vision 2020. The plan’s goals include efforts aimed to diversify the economy, expand the private sector, encourage greater Omani participation in the private sector, and ensure financial commitment to the budget. The plan targets 3 percent average annual GDP growth and 2.9 percent annual inflation. It also seeks to reduce the contribution of oil to GDP from 44 percent during the Eighth Five-Year Plan to 26 percent.
Key Economic Indicators
|Real GDP growth (%)||2.9%||3.3%||1.6%||1.9%|
|Current account (% GDP).||5.0%||-13.1%||-14.1%||-6.7%|
|Fiscal balance (% GDP)||-3.4%||-17.7%||-16.8%||-11.0%|
Source:The World Bank
The full 9 page report is available to download for free and includes:
- Oman’s current economic situation
- Key Infrastructure Projects in Oman
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