2020 has been exceptionally challenging for global economies. For Oman, add the crash in the oil prices, the global recession and the passing of its charismatic and widely loved and respected leader, Sultan Qaboos Said, in January 2020 and the nature and magnitude of challenges faced by the country were immense. The country yet remains resilient while it faces the challenges.
The Omani government, under the leadership of Sultan Haitham Tariq Al Said, has taken numerous measures to counter the economic impact of the pandemic and the decrease in oil prices; these include the reshuffling of ministries and establishment of a technocratic government, as well as increasing reliance on debt market funding and implementation of fiscal reforms. Whilst it is expected that the global recession may extend into 2021, it is projected that the Oman economy will buck this trend and make a small recovery.
The World Bank has predicted that the Sultanate’s GDP will grow by an average of 4% in 2021 should conditions ease. Much will, however, depend on the global economic situation, oil demand, and the efficacy of regulatory measures taken by the government of Oman.
Review of 2020
The substantial decrease in oil prices and combined with the economic effect of the pandemic have materially impacted all GCC economies, including Oman. In this respect, and while no official and definitive data is available yet on the state of the Omani economy in 2020, the World Bank reports that, according to preliminary data issued by the authorities, Oman’s nominal GDP has contracted by 3.9% in the first quarter of 2020.
The banking sector was not safe from the impact of the economic crisis, with KPMG reporting a decline in the average profits of Omani banks by 34.2% for the first half of 2020 compared with the same period in 2019 as a result of the reduction in credit flow, revenue compression and increase in non-performing loans.
These exceptional circumstances, however, did not discourage the government from prioritizing the needs of the populace and businesses affected by the ongoing crisis, and the Central Bank of Oman released two stimulus packages aimed at, inter alia, injecting liquidity of more than OMR8 billion (US$20.73 billion) into the economy, reducing interest rates and deferring maturity dates.
Additionally, Oman has begun tapping debt markets by launching its third local Sukuk issuance in September 2021 at a value of OMR200 million (US$518.26 million) and a US$2 billion international bond issuance, with further issuances expected before the end of the year.
‘As of the date of publication of this article, Oman has also launched a retail Sukuk issuance expected to close before the end of the year.
The current economic conditions have pushed the government of Oman to take several mitigatory measures to prevent government deficit from a further downward spiral. Hence, Oman is currently experiencing a reorganization of its legal landscape and administrative apparatus led by the dynamic Sultan of Oman which has resulted in the promulgation of over 100 royal decrees in the last few months.
A number of these royal decrees are designed to reorganize and restructure the government of Oman and the underlying legislative framework of the government’s functions with the aim of achieving the Oman Vision 2040 plan and establishing a technocratic government.
Several councils and authorities which have previously played an important role in the economy have been abolished and/or merged with ministries. In addition to changes in the form of the government, Sultan Haitham has enacted the long-awaited value-added tax (VAT) law by Royal Decree No 121/2020, scheduled to come into effect next year. The VAT law imposes VAT at a basic rate of 5% in Oman.
Preview of 2021
2021 will be a year filled with cautious optimism. While the COVID-19 pandemic and its economic effects have adversely impacted the globe, it is expected that the regulatory reform in Oman will continue into the new year and its positive effects should become visible in the form of an increase in foreign direct investments and diversification of the country’s source of revenue away from the traditional hydrocarbons sector.
At the time of publication of this article, the Government has announced its intention to introduce income tax on high income earners in 2022, which would make it the first country in the GCC to impose such tax.
2020 has been a difficult year for Oman and the rest of the GCC region. However, decisive action was taken by way of reorganization of the Government and other fiscal and regulatory reform led by Sultan Haitham. These reforms are reflective of Oman’s realization of the necessity to adapt its policies to economic realities which are expected to continue throughout 2021 in order to face the challenges ahead with resilience.