Oman faces persistent economic fragility
Fiscal instability weighs on Muscat’s ability to draw in external capital and tackle public debt
Of all the GCC nations, Oman is the most worrying from a fiscal and financial perspective. Ever since the collapse in global oil prices from their highs above $100 a barrel in 2014, the country has maintained a consistent fiscal deficit. This has resulted in a dramatic rise in the government debt to GDP ratio from just 5 per cent to around 60 per cent.
At the heart of the problem is the sultanate’s heavy reliance on oil receipts and its limited non-oil and private sector diversification – despite its low volume of oil output and relatively large population. None of this stands it in good stead in the face of low prices.
Oman’s debt is nevertheless manageable, and pales in comparison to the debt levels in many mature economies. But Muscat has so far been unable to tackle the underlying causes of its fiscal imbalance, and in 2020 is projected to backslide on recent progress with a widening of the fiscal deficit to -8.4 per cent, from -6.7 per cent in 2019.
In its ability to tap foreign capital, Oman’s junk-grade sovereign creditworthiness places it in a not dissimilar position to Bahrain. The difference is that the government in Manama is much better positioned to call upon its neighbours for emergency financial support, whereas Muscat needs to find its own way out of its predicament.
One answer may be its ongoing investment in upstream gas projects, as the market for gas enjoys a more positive forecast than the market for oil.
The country’s bullish renewable energy programme may be another, as this will bring down the cost of producing energy and reduce the use of otherwise exportable gas. Plans for an energy spot market could further encourage this growing industry.
The logistics sector also remains a key strategic imperative for the country, although infrastructure remains a work in progress. The country’s ports and free zones still needs clients, and it is still too early to tell how recent bilateral deals with the Chinese will turn out.
There is undoubtedly a great deal of potential in Oman, but Muscat needs to face its fiscal challenges head on for growth to prevail.