Low Oil Prices Hurting Oman Growth

With the sustained drop in crude oil prices, there was a slowdown in the economy in 2015 as well as in the first few months of 2016, according to the monthly bulletin released by the Central Bank of Oman.

Preliminary national accounts data for Oman pointed to a 12.2% decline in the first quarter of the year in comparison to the first quarter of the previous year. Nominal gross domestic product derived from the petroleum sector contracted by 34% and that from the non-petroleum sector registered a decrease of 2.4%, ONA reported.

Omani crude oil fetched an average price of $35 per barrel during the first half of 2016 compared to $59.3 per barrel during the first half of 2015.

On the fiscal front, the government of Oman introduced several positive reform measures supported by external borrowings, in addition to other sources of funding to tackle the fiscal deficits. With oil prices continuing to remain low, the current account, which registered a deficit in 2015 is expected to be in deficit mode in 2016 too.

With inflation based on the average annual consumer price index remaining low at 0.8% during the period January to July 2016, the CBO continued with its accommodative monetary policy stance and made revisions to the reserve requirement leaving more money in the hands of banks to facilitate lending requirements.

The CBO has been continuously reviewing the liquidity situation and no significant pressures have been noticed in the banking system.

The banking sector remained resilient supporting economic diversification initiatives and credit needs. The total assets of conventional commercial banks increased by 4.2% to OMR29.3 billion ($76.09 billion) in July 2016 from OMR28.1 billion a year ago. Of the total assets, credit disbursement accounted for 66.2% and increased by 8.3% at the end July 2016 to OMR19.4 billion.

Credit to the private sector increased by 10% to reach OMR17.2 billion at the end of July 2016. Conventional banks’ overall investments in securities stood at OMR2.6 billion at the end of July 2016. Investment in Government Development Bonds and Government Sukuk increased by 56.4% over the year to OMR922.6 million at the end of July 2016.

Banks also invested OMR398 million in Government Treasury Bills at the end of July 2016. Conventional banks’ investments in foreign securities stood at OMR711.3 million in July 2016.

Aggregate deposits held with conventional banks registered a modest rise of 0.5% to OMR18.4 billion in July 2016 from OMR18.3 billion a year ago.