Oman Country Risk Report Q4 2018
Real GDP growth will accelerate in Oman over the coming quarters, as natural gas and oil production boost exports, while rising oil prices support greater govern-ment spending. Growth will be further underpinned by rising investment into the non-hydrocarbon sector of the economy, part of the government's economic diversification efforts.
The fiscal deficit will shrink over the coming quarters thanks to broad-based revenue gains, although a return to expenditure growth will moderate the fiscal consolidation. With a persistent fiscal deficit on the horizon, a heavy reliance on oil and rising financing costs, we believe debt risks will be elevated over the coming years.
The Central Bank of Oman will maintain its policy rate differential with the US Federal Reserve in 2018 in a bid to support the currency peg. Higher interest rates will temper inflation ahead of a new 5.0% value-added tax (VAT) in 2019. This will delay a recovery in liquidity, however, which could weigh on non-oil economic growth.
Oman will maintain ties with Iran in the short term, given the two countries' shared economic and strategic interests. Nevertheless, in the face of increasing discontent from GCC neighbours and the US, Muscat will face rising costs from this position.
The sudden death of Sultan Qaboos, who has concentrated power upon himself for many years, would result in political and economic uncertainty given that the succession plan is unclear.
A renewed slump in oil prices would derail Oman's economic recovery plans and put pressure on the country's fixed exchange rate regime.
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