Economic slowdown expected to continue during 2017, says CBO
The slowdown in Oman’s economy is expected to continue during 2017, according to the Central Bank of Oman (CBO).
The central bank said Oman’s hydrocarbon sector is expected to further slowdown in 2017, despite some recovery in oil prices, due to lower oil production as part of the agreement between OPEC and non-OPEC producers.
‘At the same time, planned fiscal consolidation is expected to slowdown the growth of the non-hydrocarbon sector’, the CBO said in its annual report released on Sunday.
Although oil prices are expected to further recover somewhat, Oman’s oil price would remain lower than external break-even level, it said.
As per the International Monetary Fund’s projections, oil prices are expected to average at about US$55 per barrel during 2017-18 compared to an average of US$43 per barrel in 2016.
‘Overall, the slowdown in Omani economy is expected to continue during 2017. Nonetheless, the progress on macroeconomic reforms, such as introduction of excise and value added tax (VAT), approval for legislations on labour and foreign direct investment (FDI) would be paramount for shaping the medium-term outlook of Omani economy, especially in the backdrop of expectations about low hydrocarbon prices’, the CBO said.
According to the CBO report, the output of hydrocarbon sector declined by 23.7 per cent, while non-hydrocarbon sector output grew marginally by 0.6 per cent in 2016. ‘Overall GDP (at market prices) contracted by 5.1 per cent in 2016, lower than contraction of 14.1 per cent during 2015, mainly due to decline in both government spending and net external demand’.
As the government resorted to borrowing through loans and bonds from both domestic as well as external sources to finance fiscal deficit, the CBO said the sultanate’s debt-to-GDP ratio shot up from 12.8 per cent at the end of 2015 to 31.4 per cent at the end of 2016.
‘Continuation of ongoing fiscal reforms - reduction in subsidies, containing current expenditure and prioritising capital expenditure - would also remain a main catalyst for future macro outlook’, the report said.
‘Government has already taken various measures to promote tourism, and expand manufacturing sector, but approval of the legislation on FDI would usher in increased participation of foreign investors and accelerate the pace of economic diversification in the economy’, the CBO added.