Persistently subdued growth in 2024
Oman’s growth will edge up in 2024 on back of elevated hydrocarbon revenues (35% of GDP) and investment activity (around 25% of GDP). Although oil production is estimated to stall in 2024, higher energy prices will support growth performance. Moreover, as the country’s oil reserves are ageing, Oman is focusing more on gas production which is expected to increase 3% yoy to 46 bcm in 2024 following the inauguration of the Mabrouk North-East Field. Additionally, LNG exports are expected to grow by around 4% yoy in 2024 to a record high of 16.4 bcm thanks to the debottlenecking works (i.e., completion of the extension of the Qalhat LNG terminal that raised capacity by 1 million tonnes per year). Investments, mostly from the public sector, will edge up in line with the Vision 2040 programme aimed at economic diversification. This will support finance, manufacturing, mining, logistics (mostly road and ports), tourism and digitalisation. Concomitantly, the government has set a target of achieving net zero emissions by 2050. Higher diversification is expected to also support the contribution of net exports (around 15% of GDP) to growth as the authorities prioritise investments in exports-oriented sectors such as metallurgy, accommodation and transport facilities plastics, petrochemicals, and renewable energy, especially green hydrogen produced from wind and solar power. Private consumption (around 25% of GDP) will benefit from a recovery in tourism, ongoing urbanisation and government efforts to introduce more Omanis into the work force, which is based on replacing expatriate workers with trained Omani citizens. However, the government’s moves to gradually phase out subsidy spending will push up inflation in 2024, thereby hindering private consumption. Oman announced in 2020 that it will phase out water and electricity subsidies by 2025.
Slight recovery in fiscal and external surpluses in 2024
In line with expected higher energy prices and an increase of around 3% in gas production, Omani export growth (60% of GDP) will support the current account surplus. A recovery in the global economy would sustain the growth of Oman’s plastics and chemicals exports. The inauguration of a new ammonia plant in Salalah (with a production capacity of 1,000 metric tons per day of liquid ammonia) and the Duqm refinery that will come into full production by end-2023, will result in higher chemical exports. An estimated increase in tourism revenues by around 10% to USD 3.3 billion in 2024 (nearly 2.5% of GDP) will also sustain the current account balance surplus. That said, this will be outmatched by sustained services imports linked to the diversification and development of hydrocarbon production, as well as increased remittances and dividend outflows from foreign workers and companies, keeping the services and income accounts in deficit.
Higher hydrocarbon prices (70% of total revenue) and the introduction of income tax are expected to support fiscal revenues. Additionally, growth of non-hydrocarbon revenues in line with economic diversification is also estimated to contribute to the fiscal surplus. Total expenditures, however, are expected to edge up by around 5% in 2024 from the year-earlier level, led by a 7% rise in current expenditures (around 25% of GDP) mainly due to the wage bill (nearly 25% of total expenditures) and sustained social transfers including subsidies (40%). This would place downward pressure on the fiscal surplus.
Political scene will remain calm
Sultan Haitham bin Tariq al-Said was named to Sultan Qaboos in 2020 after the latter’s death. Tariq al-Said concentrates power and has been able to ensure political legitimacy. Regional instability presents both an opportunity to mediate, and a source of risk for the country, particularly with the war in Yemen which is at Oman’s western border. One of the key risks relates to its potential to cross the border. In such a scenario, the country would be able to request military support from the US and other allies. The recent improvement of ties with Iran on the basis of expanding bilateral interactions will help to assure regional stability. On the domestic front, the gradual phasing out of subsidies as part of fiscal reforms may result in renewed social opposition, as was the case in May 2021.