Muscat needs to stimulate growth
21 December 2023
Commentary
John Bambridge
Analysis editor
Since 2020, when Oman’s current account and fiscal deficits peaked in the double digits and its public debt soared close to the 70 per cent mark, Muscat has been on a cost-cutting and austerity drive.
The measures the government implemented were wildly successful by regional standards, turning the country’s trade and fiscal balances positive again and slashing the sultanate’s debt by 40 per cent within two years. Not every decision was popular, and in mid-2021 the government faced protests, but it also mitigated a key driver of discontent: inflation – which has not risen above 2.8 per cent in the last three years.
Unemployment, which reached a 2018 low of 1.8 per cent but spiked in 2020 to 2.9 per cent, is also on its way back down, having reduced again to 2.3 per cent in 2022, according to the World Bank. All in all, Muscat appears to have balanced its books without major repercussions.
At the same time, Oman’s broader economy is in dire need of succour. The country needs and wants to diversify away from the hydrocarbons industry, which still makes up two-thirds of its revenue but is a volatile economic base. This is clear from the country’s lacklustre 1.2 per cent real GDP growth in 2023.
The country’s growth for 2024 was meanwhile forecast by the Washington-based IMF at 2.7 per cent in October 2023, but the extension in November of the Opec+ oil production curbs for the duration of the first quarter of 2024 could imperil that projection.
With a view to the future, Oman has been soliciting itself as a prospective hub for green hydrogen, with the state entity Hydrogen Oman (Hydrom) setting in motion plans for the development of $50bn-worth of related projects.
The delivery of the plans would surely be a long-term boon for Oman, but the country’s projects market is also in need of far broader stimulation, having shed $30bn more in project completions since 2017 than it gained in awards – leaving just $14bn-worth of projects in the execution phase today, according to regional projects tracker MEED Projects.
Muscat’s austerity drive has been efficacious, but the projects market sorely needs spending if Omani contractors are to thrive and maintain the capacity to capitalise on the planned green hydrogen boom.
There are $160bn of planned projects in the country, including $18bn-worth in the bidding stage, but for Oman to prove it is once again on the up, it needs to pick up the pace of contract awards on its public schemes.
MEED’s January 2024 special report on Oman includes:
> GOVERNMENT & ECONOMY: Muscat performs tricky budget balancing act
> BANKING: Oman banks look to projects for growth
> OIL & GAS: Oman diversifies hydrocarbons value chain
> POWER & WATER: Oman expands grid connectivity
> HYDROGEN: Oman seeks early hydrogen success
> CONSTRUCTION: Oman construction is back on track
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