Coface Group


Population 4.2 million
GDP per capita 18,970 US$
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  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 0.3 1.8 0.0 -2.8
Inflation (yearly average, %) 1.6 0.9 0.8 1.8
Budget balance (% GDP) -14.0 -7.9 -6.7 -8.4
Current account balance (% GDP) -15.6 -5.5 -7.2 -8.0
Public debt (% GDP) 46.4 53.4 59.9 63.9


(e): estimate  (f): forecast


  • Strategic location in Ormuz straights
  • Major regional re-export hub position
  • Efforts implemented to diversify economy away from oil
  • Balanced external politics
  • Recovering growth dynamics although gradual


  • High dependence on oil
  • Wide fiscal deficit crowding out the private sector
  • Lower oil revenues weighing on twin deficits
  • Political uncertainty related to the Sultan Qaboos’ succession


Growth is coming back very gradually

After showing no growth in 2019, Oman is expected to return into positive-growth territory in 2020. However, growth will remain below its 2005-2014 average of 4.5%. Favourable base effect will play its part. Nevertheless, low oil prices will prevent growth to reach its long-term average. Although not an OPEC member, Oman cut its oil production following the agreement of OPEC and non-OPEC countries in 2017, by around 25,000 barrel per day (b/d) on average to reach 970,000 b/d in 2019. With the production cuts extended until March 2020 and their possible extension, growth outlook remains moderate. Low oil revenues also impact non-oil sectors, as the latter depends on government spending to maintain its activity level. Feeble fiscal position will limit new investments as the government remains the leading investing force in the country. Still, within their economic diversification plan Vision 2040, the authorities may opt to invest in several sectors such as infrastructure and petrochemicals. Weak oil prices would also be a drag on private demand through consumer and business sentiment. Moreover, further reforms on subsidies may affect private consumption negatively. Net exports will grow mildly in the coming quarters. Oman’s efforts to improve its infrastructure, touristic and petrochemical sectors through imports can be considered as contributing to higher manufactured and service exports in the future. Oman’s position as a major trading hub in the region plays an important role for Omani exports of petrochemicals and metals, as well as for re-export.


Strained public finances, rising debt

Budget deficit is expected to widen in 2020 after hitting almost 7% of GDP in 2019. The Sultanate’s fiscal break-even point is calculated at USD 87 per barrel by the IMF. Oil prices below this threshold dig fiscal deficit. Nearly 60% of total fiscal revenues come from oil, and nearly 80% of total public expenditure goes to current spending, including public salaries, interest payment and subsidies. The government has again postponed the introduction of a planned 5% VAT to 2021, according to its July Eurobond prospectus. Although this can be considered positive for the retail sales, the lack of a substantial increase in non-oil revenues may weigh on payments made by the government to other sectors especially construction. Moreover, any cuts on capital projects would weigh on the business sector. Currently, the risk on the funding of the budget deficit remains low. Despite its non-investment grade, Oman taps international markets successfully and is expected to continue to do so in 2020.Yet, any deterioration of global risk appetite and the lack of a clear structural reform agenda may cut investors’ appetite, which would increase borrowing costs of the government. Moreover, heavy public borrowing creates a crowding-out effect for the business sector. The pace of growth of loans to the private sector remained below 2% year-on-year as of mid-2019. The weight of government debt stock in the GDP will then continue to grow. The weakness in oil prices will continue to keep Oman’s current account balance under pressure. If the government restrains spending on infrastructure projects, then import demand may inch down, restraining the widening of the current account deficit. Oman has been financing its current account deficit by a mix of foreign direct investments, reserves and debt. As of 2018, FDI to Oman stood at 5% of GDP. The central bank’s gross reserves are estimated to stand at USD 16 billion, covering gradually lower amount of imports (nearly 5 months of imports estimated in 2020 vs. seven months in 2016). The external debt of Oman already stands at a high level and is estimated to reach nearly 110% GDP in 2020.


Succession remains key political issue

The Sultan Qaboos, the long-time ruler of the Sultanate, has a fragile health and no heirs. Therefore the succession remains a source of political uncertainty. In case of a non-agreement within the royal family to choose a successor within three days of his death, the authorities will open a letter with the name of the successor. The transition can create a period of temporary instability. The balanced policy that Oman has been implementing for years in the region is expected to continue. The risk of a spill-over from the war in Yemen across its borders continues. Yet if this happens, the Sultanate will be able to call on military assistance from its international allies.


Last update: February 2020

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