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Oman's fiscal consolidation a model of economic reform: World Bank
MUSCAT, JUNE 20
Oman's fiscal consolidation journey has been hailed by the World Bank as a notable example of effective economic reform and responsible fiscal management.
In its latest Gulf Economic Update, published by the Economic Policy Unit of the World Bank Group for the MENA region, the multilateral institution highlights the measures implemented by the Omani government to restore fiscal balance following the twin shocks of the 2014 oil price collapse and the Covid-19 pandemic.
'Oman has made substantial progress in enhancing its economic resilience and building a foundation for sustainable growth,' the report stated. 'Like other GCC countries, it has grappled with the challenge of reducing dependence on oil revenues while managing public finances amid volatile global oil prices. During previous periods of low oil prices, Oman experienced twin deficits and relied heavily on borrowing to cover fiscal gaps. In recent years, however, it has undertaken significant steps to reduce its reliance on oil and strengthen fiscal sustainability.'
The report cited major reforms introduced under Oman Vision 2040 and the 2020–2024 Medium-Term Fiscal Plan (MTFP) as critical to achieving this progress. These initiatives helped diversify revenue streams, improve public spending efficiency, and manage oil windfalls more prudently.
'These reforms have delivered tangible results,' the report emphasised. 'Since 2022, Oman has markedly improved its fiscal position, notably by reducing public debt through the strategic deployment of oil windfalls. This has expanded fiscal space and enhanced the country's capacity to withstand external shocks. Oman's experience stands out as a model of effective fiscal consolidation and economic reform.'
The World Bank also noted Oman's gradual progress in economic diversification. While the hydrocarbon sector continues to dominate, its share of GDP has steadily declined over the past two decades in favour of services, albeit at a modest pace. Within the services sector, wholesale and retail trade, public administration, and defence remain dominant, while sectors like tourism and ICT have yet to significantly expand their economic footprint. Manufacturing has grown in importance but remains concentrated, with nearly 40 per cent of output derived from chemicals and related products.
A particularly positive development is the growth of non-hydrocarbon exports, which now account for roughly one-third of total exports, compared to just 12 per cent in the early 2010s. 'Key non-oil exports include chemicals, base metals (especially aluminium), plastics, and mineral products,' the report noted. 'Re-exports — mainly vehicles, electricals, and machinery — have declined in share over the past decade. Oman's key export destinations include the UAE, Saudi Arabia, the US, and India. As for oil exports, China remains the dominant market, receiving nearly 94 per cent of Oman's crude exports.'
The report also credited the MTFP with delivering successive fiscal surpluses since 2022 and significantly reducing public debt. 'MTFP targets for fiscal balance were met — and even exceeded,' the report stated. 'Public spending was significantly curtailed, dropping by around 16 per cent of GDP during the five-year period. Public debt declined sharply from approximately 68 per cent of GDP in 2020 to an estimated 35 per cent in 2024, reflecting prudent fiscal management and accelerated debt repayments.'
To sustain momentum, the report recommended further domestic revenue mobilisation, with measures already underway — such as the draft Personal Income Tax (PIT) bill currently under consideration.
'Despite the progress made, Oman's economy remains sensitive to global oil prices and demand,' the report cautioned. 'Further efforts to broaden non-oil revenues and continue rationalising public spending — while improving its efficiency and equity — will require a balanced approach that ensures societal buy-in. Strengthening institutional capacity, enhancing governance, and fostering a culture of fiscal responsibility are also essential to create additional fiscal space for growth-enhancing investments and ensure long-term fiscal sustainability.'
According to the World Bank, Oman's economic growth is projected to gradually accelerate, rising from 1.7 per cent in 2024 to 3 per cent in 2025, 3.7 per cent in 2026, and 4 per cent in 2027. The rebound will be driven by a 2.1 per cent increase in oil GDP in 2025 and 3.4 per cent growth in non-oil sectors, particularly in construction, manufacturing and services.
