Oman: Faster than expected growth in 2021

Oman’s economy grew 3.0% in real terms last year according to official estimates, higher than the 2.2% growth we had expected. The oil and gas sector expanded 4.1% while non-oil growth reached 2.2% after contracting -4.0% in 2020.  With a higher base in 2021, we now expect Oman’s economy to grow 4.0% this year (from 4.5% previously), with non-oil growth accelerating to 3.3% and oil and gas GDP rising to 5.0%. Oil production in Oman has exceeded 1mn b/d since December 2021, and the finance ministry had indicated that this level of production would be maintained through 2022.

Oman: GDP growth and budget balance

Source: Haver Analytics, Emirates NBD Research

Budget moves into surplus

The ministry of finance said the country posted a OMR 210mn budget surplus in the first two months of the year, compared with 457mn riyals deficit a year earlier. Both oil and non-oil revenues increased, the latter reflecting income from VAT which was introduced last April.

Public spending rose 10.2% y/y on year to OMR 1.7bn driven by interest payments, investments for civil ministries and gas purchases. We expect the budget to record a surplus of 7% of GDP in 2022, from a deficit of -3.7% in 2021.

Ratings upgrade

Oman's 2022 budget allocated 4bn riyals to meet debt obligations, including the repayment of 2.7bn riyal loan principals and payment of 1.3bn riyals in loan interests. Oman repaid OMR 1.49bn of loans at the end of March, including an OMR 850m loan prior to its maturity, the finance ministry said. Oman is also preparing to pre-pay OMR 1.36bn worth of loans at the end of this month, according to the ministry.

Earlier this month S&P Global Ratings upgraded Oman’s long-term sovereign debt rating to ‘BB-’ from ‘B+’, citing higher oil prices, rising hydrocarbon production and the government’s fiscal reform program. The credit rating agency also revised the country's outlook to stable, noting that the stable outlook balances the significant improvement in the government’s balance sheet over the next three years against higher medium-term fiscal pressure. The agency expects that government net debt will narrow to 12% of GDP in 2025, a sharp improvement from a previous forecast of above 30%.