World Economy

Oman Growth Weak as Low Oil Prices Persist

Oman Growth Weak as Low Oil Prices PersistOman Growth Weak as Low Oil Prices Persist

Oman’s economy is showing signs of slowing with consumer confidence weakening, government projects being cut, and market conditions staying bearish, said a report.

The persistence of low oil prices will see Oman register substantial deficits in 2016 and 2017, increasing the urgency for fiscal consolidation, said the National Bank of Kuwait outlook for Oman, TradeArabia reported.

Following reforms that had little impact on public finances in 2015, the government has come back with a slew of measures targeting excessive spending and better revenue collection. On the downside, these measures are expected to erode future income expectations for both consumers and investors. Credit growth is expected to slow as a result, it said.

Tightening liquidity in the banking sector, due to domestic government borrowing and declining deposits, further add to these concerns.

On the upside, recent government efforts show its resolve in divesting away from the public sector. Reforms supporting small and medium-sized enterprises and foreign investors hope to spark growth in the non-oil sector. Deepening ties with Iran may also be a boon for both the non-oil and financial sectors, the NBK report said.


  Non-Oil Sector Bearish

While growth was healthy in 2015, at an estimated 3.5%, it is expected to slow in 2016 and 2017 to an average of 2%. Weakening consumer and investor confidence will be the primary drag.

A survey by the National Center for Statistics and Information showed a sharp decrease in consumer confidence in 1Q16, stemming mainly from uncertainty over future income. These worries follow cost-cutting measures implemented by the ministry of finance in H1.

As a result, the mood in the non-oil sector has been bearish. As of March, growth in real estate sales slowed to 6% year-on-year from an average of 32% in 2015; the number of newly registered vehicles retreated by 25% during the month, down for the 13th consecutive month; hotel revenue growth dropped to 4%, from a 2015 average of 15%, the NBK report said.

Domestically, Oman is looking to jump start its economy by pursuing its development plan, which will emphasize the role of the private sector in funding more than half of the OR41 billion ($106.4 billion) to be spent on the plan. To that aim, Oman has passed legislation allowing for 100% foreign ownership and has abolished minimum capital requirements for firms. The small and medium-sized enterprise sector, a pillar in Oman’s diversification strategy, is set to benefit greatly from these developments.