Economic reforms to strengthen Oman’s fiscal position, says IMF
Oman’s reform efforts rightly aim at strengthening the country’s fiscal position, enhancing private sector-led growth and job creation and encouraging economic diversification, the International Monetary Fund (IMF) has said.
An IMF team led by Stéphane Roudet visited Muscat from March 26 to April 8 to hold the 2019 Article IV consultation discussions with the Omani authorities.
In a statement on IMF’s website, Roudet said economic activity is gradually recovering in Oman, reflecting higher confidence driven by a rebound in oil prices and higher government spending.
“Preliminary budget execution data indicate an improvement in the overall fiscal balance last year. The fiscal deficit is estimated to have declined to about 9 per cent of GDP from 13.9 per cent of GDP in 2017, reflecting higher oil revenues,” he said.
Roudet said that accelerating structural reforms is paramount to promote private investment and job creation, improve productivity and competitiveness, and advance diversification. “The government recently adopted important reforms in the areas of commercial law and arbitration and licensing procedures. Vision 2040’s emphasis on fiscal sustainability, governance and rule of law is welcome.”
“Further efforts to strengthen the business environment, including by reducing obstacles to foreign direct investment, fostering competition, and further easing trade barriers would help strengthen external competitiveness. Accelerating diversification efforts under the Tanfeedh programme could also help raise non-hydrocarbon exports,” Roudet added.
The IMF expects Oman’s fiscal deficit to decline to about 8 per cent of GDP this year, as the impact of lower oil prices is more than offset by a decline in spending, one-off revenue, and implementation of a new excise tax on selected products.
“Further efforts to curtail spending and the planned introduction of value added tax (VAT) could reduce the deficit by another 2 percentage points of GDP over the next two years,” Roudet said.
He said deeper fiscal consolidation is important for the sultanate to ensure fiscal and external sustainability. “The authorities are encouraged to lay out and implement an ambitious medium-term fiscal adjustment plan, based on reforms to tackle current spending rigidities, streamline public investment, and raise non-hydrocarbon revenue.”
These efforts, Roudet said, should be implemented by prioritising measures that help limit the impact of fiscal consolidation on growth and by placing more of the adjustment burden on those who can best shoulder it. “In the near term, expeditious introduction of VAT and measures to adjust government expenditure are of the essence,” he added.
According to the IMF, Oman’s external buffers remain adequate with gross international reserves of the CBO increased by about US$1.3bn in 2018 to US$17.4bn. “The government’s external assets in the State General Reserve Fund provide additional buffers. The exchange rate peg to the US dollar is appropriate considering the structure of the economy,” Roudet said.
“The IMF team highly values the candid discussions with the Omani authorities and expresses its gratitude for their hospitality and excellent cooperation,” he added.