IMF ‘upbeat’ about Oman’s economic outlook

Morgan Stanley Research, an affiliate of US multinational investment bank and financial services giant Morgan Stanley, has characterised as ‘upbeat’ the International Monetary Fund’s (IMF) recent assessment of Oman’s economic outlook. In a recent Article IV report statement, marking the conclusion of a virtual mission to the Sultanate last month, the IMF welcomed reform measures and other initiatives set out in the Medium-Term Fiscal Balance Plan’s to pare its annual budget deficit and public debt. Key revenue generating measures enshrined in the Plan include the introduction of Value Added Tax (VAT) in 2021, plans for a personal income tax on high-income earners, and expansion of the excise tax base. Measures to curb expenditure include efforts to contain the wage bill via civil service reforms, targeting energy subsidies to the most vulnerable, streamlining capital expenditure, and broad-based improvements in expenditure efficiency, the Washington DC based global institution had noted. Morgan Stanley Research, based in London, described the IMF’s assessment as encouraging. “The IMF’s Article IV report statement on Oman is upbeat, as the Fund now sees a balanced budget in just three years and revised lower its medium-term leverage projections by 40 per cent of GDP. This in turn is likely to drive further price gains in Oman eurobonds as investor positioning does not look extended,” Jaiparan S Khurana, Strategist, remarked. Citing the IMF statement, Morgan Stanley Research noted that the Fund has projected a 2021 deficit of just 5.4 per cent of GDP, well below the budgeted deficit of 8 per cent. “The better fiscal outlook is partly explained by the IMF assuming oil prices to average $55/bbl in 2021 versus the budgeted oil price assumption of $45/bbl. However, it also seems like the IMF is now giving credence to fiscal measures to boost non-oil revenues and controlling current expenditure as the Fund was pencilling in a deficit at 16.8 per cent of GDP (or around 13 per cent adjusted for expenditure shifted to Energy Development Oman EDO) with an oil price assumption of $45-50/bbl during its October 2020 regional economic outlook,” the research agency said. The Fund’s “constructive narrative” on Oman’s economic outlook is further accentuated by its “upbeat” assessment of the Medium-Term Fiscal Plan (Tawazun) of the government, according to the research outfit. It said: “The Fund also sounds more upbeat now on the medium-term outlook by pencilling in a near balanced budget in 2024 whereas Tawazun was itself pencilling in a 1.7–per cent deficit in 2024. The shift of certain expenditure to EDO would explain some of the discrepancies but the Fund envisages a more benign leverage path as well by assuming leverage has peaked in 2020 and would decline to 65 per cent in 2024 versus its October 2020 projection for leverage to reach 95 per cent of GDP in 2024. In contrast, Tawazun pencilled in leverage to peak only in 2022 and to decline but remain elevated at 80 per cent thereafter.” As a result of this positive assessment by the global funding body, the risk of more bond issues by the Omani government in 2021 has “significantly reduced”, Morgan Stanley Research added.