Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Basic data
According to cheeroutdoor.com, Oman’s economy is highly dependent on oil revenues (approx. 30% of GDP, approx. 65% of budget revenues and approx. 68% of exports). GDP in 2020 reached OMR 2billion (i.e. USD 64 billion) at current prices (year-on-year decrease of 4.3%). Compared to data from international sources, Omani institutions have relatively more accurate data. According to them, the economy should grow at a rate of 2.3% in 2021. Inflation reached 1.42% (CPI, year-on-year December 2020 yoy). The unemployment rate at the end of November 2020 was 2.4%, with men at 1.1% and women at 8.6%. Of the 1.84 million people employed in Oman, 1.44 million are foreigners and 0.4 million are Omanis. The vast majority of Omanis then work in the public sector. Due to the entry of a large young Omani population into the workforce, the so-called “Omanization”, i.e. the compulsory employment of Omanis, has been ongoing in the country for a long time.
The share of individual sectors in the creation of Oman’s GDP is approximately as follows: oil extraction and processing 29%, gas 5%, agriculture and fishing 2%, industry 19%, the rest is accounted for by services. In the long term, Oman is focused on increasing the share of manufacturing, food and fishing industries and building logistics capacity, especially at the port of Duqm. Oman exports oil and gas (2/3 of exports). It mainly imports electrical and mechanical goods, basic metals and materials, and means of transport. The largest import partners in 2020 are China, UAE, USA, India and KSA. The largest customer of Omani oil is China, up to 80% of Omani oil goes there.
As in the case of other oil-producing countries, Oman’s foreign trade is significantly in surplus. During the crisis year of 2020, the ratio of exports to imports reached more than 3:2. Industrial production fell by about 5%. Nevertheless, all major investment projects continued in the country. In connection with the increasing indebtedness, the export risk also increased.
| Pointer | 2018 | 2019 | 2020 | 2021 | 2022 |
| GDP growth (%) | 0.9 | -0.8 | -4.3 | 2.3 | 3.5 |
| GDP/population (USD/PPP) | 30,734.9 | 30,917.8 | 31 130.0 | 31,910.0 | 32,360.0 |
| Inflation (%) | 0.9 | 0.1 | -0.9 | 1.5 | 2.4 |
| Unemployment (%) | 1.8 | 1.8 | 2.4 | ON | ON |
| Export of goods (billion USD) | 41.7 | 38.7 | 25.8 | 29.7 | 36.1 |
| Import of goods (billion USD) | 23.7 | 20.5 | 16.4 | 17.8 | 19.5 |
| Trade Balance (Billion USD) | 18.1 | 18.2 | 8.8 | 11.3 | 15.9 |
| Industrial production (% change) | 2.2 | 1.3 | -4.7 | 1.0 | 3.5 |
| Population (millions) | 4.6 | 4.6 | 4.4 | 4.4 | 4.6 |
| Competitiveness | 47/140 | 53/141 | ON | ON | ON |
| OECD export risk | 4/7 | 5/7 | 5/7 | 6/7 | ON |
Source: EIU, OECD, WEF, Central Bank of Oman
Public finance and state budget
The collapse of budget revenues from the sale of oil during 2020 resulted in an increase in the budget deficit (OMR billion), i.e. 16% of GDP. The government was therefore forced to adopt the so-called “Medium-term Fiscal Consolidation Plan”, on the basis of which it reduces expenses and introduces new sources of income for the state budget. The government reduced the salaries of civil servants and public investments, and cut state subsidies for electricity, water and gasoline. On the other hand, it has introduced VAT, is about to introduce an income tax for high income earners and expanded the consumption tax base. It attracts new investors to the country, it tries to provide public services in the form of PPP projects.
| Public finance | |
| State budget balance (% of GDP) | 16 |
| Public debt (% of GDP) | 79 |
| Current account balance (billion USD) | -10.1 |
| Taxes | |
| AFTER | ON |
| F.O | ON |
| VAT | 5% |
The current account of the balance of payments has been negative for a long time and thus indicates an increase in Omani indebtedness. Its cause is always the drop in oil prices on world markets, as was the case in 2015 and 2016 and now again in 2020. Foreign exchange reserves reached the level of 6.54 billion OMR at the end of October 2020. The Omani rial (OMR) has remained firmly pegged to the USD since 1986 at a rate of 2.6008 USD/OMR. In 2020, Omani debt reached the level of 79% of GDP, and in the following year, 2021, according to the Ministry of Economy, it should increase to 83% of GDP.
Banking system
There are approximately 20 banks in Oman that control the flow of finance in the economy. The largest banks are: Bank Muscat, Bank Dhofar, NBO, Bank Sohar and HSBC Oman. The banking sector is supervised by the state-owned Central Bank of Oman. Observers describe the banking sector as stable considering the dominant position of the petrochemical sector in the country. The Omani Rial (OMR) exchange rate has been firmly pegged to the USD since 1986, 1 OMR = 2.6008 USD.
The default rate remained at 0.5% for most of 2020, having hovered between 1% and 3% in the previous ten years. In Oman, the interest rate is set by the central bank and the official interest rate is the REPO rate.
In Oman, letters of credit are governed by the provisions contained in Chapter 6 (“Documentary credit”) of Royal Decree No. 55/90 (“Oman Commercial Law”). According to this law, letters of credit can be revocable or irrevocable (Article 380). In the case of a revocable documentary letter of credit, the bank may change or cancel the letter of credit at any time on its own initiative or at the request of the buyer, without any liability to the beneficiary (Article 381). An irrevocable documentary letter of credit represents a categorical obligation of the bank, which is irreversible and direct in relation to the beneficiary, if its conditions are met (Article 382). An irrevocable documentary credit cannot be canceled or amended unless all parties agree. Therefore, an irrevocable documentary credit is more advantageous to the seller as it provides more certainty in terms of payment. Courts are reluctant to issue orders, which order banks to withhold payment unless there are clear signs of fraud. If the applicant does not pay the bank the value of the transport documents meeting the conditions for opening a loan within three months from the date of notification of the delivery of these documents, the bank may sell the goods according to the procedure established by the court.
Tax system
The Omani tax system is clear, because the amount of taxes applied is smaller than in the Czech Republic. The system is unstable because new taxes are being introduced continuously. It is expected that an income tax will be introduced for high-income groups of the population, but more detailed information has not yet been published.
Natural persons are not taxed in Oman, only legal entities. However, in June 2021, the Ministry of Finance launched a portal to which all providers of goods and services for the state sector, regardless of whether they are FO or PO, must register. From April 16, 2021, five percent VAT was introduced in the country, a total of 488 items with a tax rate of zero. Income from license fees and technical services to tax non-residents is taxed at a rate of 10%. PO income tax and capital income are taxed at a rate of 15%. In the case of FO, the sultanate does not impose any other taxes, incl. income from capital gains, property, inheritance or real estate.
Considering the country’s rapidly increasing indebtedness and the high state budget deficit, the government is forced to look for both savings and new sources of budget revenues. The introduction of new taxes, which we are already used to in the Western world, the increase of rates or the expansion of the tax base by new items seems to be inevitable in the medium term and should be realistically expected. Changes are announced long in advance, new taxes usually start at low rates.
