Lower hydrocarbon prices continued to weigh on the overall macroeconomic scenario in the Sultanate and the government has been proactive in undertaking various measures to address the challenges over the short and medium-term, according to the Central Bank of Oman annual report.
The economy contracted in nominal terms for the second year in a row in 2016, after a sustained robust expansion between 2010 and 2014.
Reining in public expenditure, augmenting non-oil revenue, pursuing economic diversification are key facets of the State General Budget, 2017. The sharp decline of 27.3 per cent in hydrocarbon revenue necessitated consolidation in public expenditure, 6.5 per cent in 2016 on top of 9.7 in 2015, facilitated substantially by reduction in investment expenditure as well as implementing subsidy reforms, CBO Executive President HE Hamood Sangour Al Zadjali said in his foreword to the report.
Though oil prices are expected to further recover somewhat, Oman oil price would remain much lower than the external breakeven level. At the same time, planned fiscal consolidation is expected to slow down the growth of the non-hydrocarbon sector, the report said.
The pact among member countries of Organisation of Petroleum Exporting Countries and other producers, coupled with expectations about robust global demand, contributed to recovery in crude oil prices..
Oman oil price would remain much lower than the external breakeven level. As per International Monetary Fund’s projection, oil prices are expected to average at about $55 per barrel during 2017-18 compared to an average of $43 a barrel in 2016.
Overall, the slowdown in the economy is expected to continue during 2017. Nonetheless, the progress on macroeconomic reforms, such as excise and value added tax and approval for legislations on labour and foreign direct investment must for medium-term outlook.
The continued emphasis on economic diversification under the Ninth Five-Year Development Plan and Tanfeedh should pave the way for sustainable growth in the economy.
The government has taken steps to promote tourism and expand the manufacturing sector accelerate pace of diversification in the economy.