The Sultanate of Oman’s sovereign wealth fund, the Oman Investment Authority (OIA), released economic projections earlier this week that are in line with this GDP growth estimate at constant prices.

“Oman’s real GDP is expected to grow by 1.7% y/y in 2024 as a whole, up from 1.3% y/y in 2023. As growth in the first half currently stands at 1.9% y/y, and given that oil prices have edged lower since the start of the second half, the 1.7% y/y growth rate is likely to be achieved. Growth is projected to accelerate to 3.1% y/y in 2025, supported by the non-petroleum sector,” it said, as reported by Zawya.

According to the forecast, which was put together by the Authority’s Directorate of Economic and Investment Research, the Central Bank of Oman’s (CBO) monetary easing policies are anticipated to support GDP growth through 2025, in line with the US Federal Reserve’s rate-cutting trajectory.

“Coupled with low inflation levels, these measures are anticipated to stimulate investments, bolster private consumption, and attract higher FDI inflows,” the Authority’s investment research unit stated.

However, it did warn of potential negative effects on this optimistic outlook. Potential weaknesses might manifest as falling oil prices brought on by a decline in global demand, particularly from China. The potential consequences of the trade tariffs that Donald Trump, the incoming US president, has threatened are also concerning.

“Additionally, renewed US tariffs under Donald Trump and rising inflation could prompt a more hawkish Federal Reserve and maintain interest rates at elevated levels. This would negatively impact the Sultanate as the CBO would maintain interest rates at elevated levels, leading to lower credit demand, reduced investments, and higher government debt costs,” the OIA research commentary explained.

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In 2016, all the six members of the GCC had agreed to introduce  a 5 percent VAT. The UAE introduced the VAT in 2018 followed by Bahrain in 2019. 

Ali bin Masoud Al Sunaidy told Bloomberg at the the World Economic Forum in Davos, “VAT is something people don’t like it but this is something we have been lobbying for. It will come into effect sometime in the beginning of next year.”

According to a EY study, GCC countries that have adopted VAT are expected to generate additional annual revenues of $25 billion. This is helpful, especially when countries are aiming to generate more revenues. For example, Muscat is targeting an economic growth between 2.5 percent and 3 percent this year, the media reports said. 

Previously, the Sultanate’s GDP took a sharp dip from 30 billion Omani riyals to 26 billion riyals. However, its economy has since rebounded to 30 billion riyals, according to Al Sunaidy. 

The Sultanate is introducing a set of reforms this year to diversify its non-oil economy. Earlier this month, it also introduced a new foreign domestic investment (FDI) law. 

The Sultanate’s decline in oil revenue is affecting its sovereign debt which is expected to increase more than 60 percent this year, observed Fitch Ratings.

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According to the Central Bank of Oman, the country’s net foreign assets have increased by OMR 990 million. The foreign assets are jointly owned by the CBO and the State General Reserve Fund (SGRF).

“The overall balance of payments was in surplus, leading to an accretion of OMR 990 million in the country’s foreign assets,” said TahirSalim Al Abri, executive president of the Central Bank of Oman told the media.

Another factor that contributed to the growth of foreign assets is foreign direct investments in Oman’s oil and gas sector. The country also issued international bonds to finance its fiscal deficit. Net inflows in the capital and financial accounts led to a surplus in the overall balance of payments, which increased foreign exchange reserves by OMR 990 million.

Recently, the Oman International Development and Investment Company (Ominvest) signed a partnership agreement with Oxford Business Group, a London-based global research and advisory firm.

According to the agreement, the investment holding company will publish a report which will detail the legislative and regulatory reforms that have been introduced to enhance Oman’s business climate for investors. The report will also analyse the recently announced Commercial Companies Law, which is expected to be pivotal in attracting foreign direct investment to Oman.

Despite slow growth and economic downturn, Oman recorded a GDP growth of 12 percent in 2018. However, in 2017 Oman posted a GDP growth of 7.8 percent.

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