The Omani government’s near-term and medium-term efforts to stimulate and sustain the country’s economic recovery, battered by the global downturn, have been broadly welcomed by the International Monetary Fund (IMF).
A report issued by the Washington-DC-based global financial institution earlier this week, following its Article IV consultations with Oman’s authorities, commended the wide spectrum of initiatives rolled out by the government to help mitigate the severe health, economic and social impacts of the crisis.
“(The IMF) Directors welcomed recent progress in structural reforms aiming at boosting non-hydrocarbon sector growth and supporting external sustainability,” the world body noted in its report.
“Priority should be given to improving flexibility in the labour market, promoting employment in the private sector, and further encouraging female labour participation. Directors welcomed efforts to strengthen the social safety net and commended the authorities for accelerating SOE (state-owned enterprises) reforms to enhance competition and efficiently manage public resources,” it further stated.
During deliberations with the visiting IMF delegation, Omani officials reiterated the government’s commitment to mitigating the economic effects of the pandemic, while also maintaining macroeconomic stability and addressing the concerns of the local population.
The Sultanate also voiced optimism that the acceleration of the vaccination programme, coupled with the easing of lockdown restrictions would help “entrench” the country’s economic recovery.
“The authorities and (IMF) staff agreed that near-term policies should continue to address the health crisis (including vaccine rollout), support the recovery, mitigate risks to financial stability, and minimise economic scarring. Withdrawal of policy support measures would be carefully coordinated and calibrated to support hard-hit but viable sectors and avoid undermining the recovery,” the Fund stated.
Medium-term fiscal challenges are proposed to be addressed by the Medium-Term Fiscal Plan (MTFP), a strategy unveiled by the Ministry of Finance last year. A key goal of the MTFP is to reduce the fiscal deficit primarily by curbing fiscal expenditure but also by boosting non-hydrocarbon revenue, according to the Fund’s report.
Some of the measures adopted last year, and implemented over the course of the pandemic, have helped buoy state revenues while easing public expenditures, the report said. In particular, efforts to rein in the country’s unsustainable public sector wage bill, in particular, were commended by the Fund.
“Net employment in the civil service has flattened in recent years and wage bill spending was largely stabilised.
In 2021, measures to streamline the wage bill included mandatory retirement for long serving employees, lower wage grid for new recruits, increasing the minimum years of service required for early retirement, and rationalising allowances, which would reduce the wage bill by 2.4 per cent of GDP in structural terms. Going forward, it will be important to keep the wage bill from rising as a share of GDP,” the report noted.
Other measures that helped improved the country’s fiscals include reductions in water and electricity subsidies, introduction of VAT, and modest cuts in capital spending.
The Fund also credited the policy responses of the Central Bank of Oman (CBO) in striking a balance between supporting hard-hit sectors and containing financial stability risks.
It stated: “Along with rising restructured loans prior to the pandemic, loan moratoria and associated risk classification could obscure deterioration in asset quality. Given the gradual and uncertain recovery, credit risk is a concern going forward, requiring close monitoring. Thus, the CBO continues to have a forward-looking assessment of banks’ asset quality and has taken measures, including continuing constraints on dividend distribution, to ensure that banks’ buffers are adequate to withstand any future materialisation of credit risks.”
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