Oman

Momentum in private and non-oil sector, leveraging its neutral diplomatic role

Last update – January 2025

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LOW RISK FOR ENTERPRISE

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Form of state	Monarchy
Head of government	HAITHAM bin Tariq Al Said (Prime Minister)
Next elections	October 2027

Strengths & weaknesses

Thanks to oil revenues and consolidation plan, Oman has a strong fiscal position
Growing non-oil business activity
Oman's balanced foreign policy and diplomatic efforts enhance its regional influence and qualify the country as a credible additional supplier of hydrocarbons

Overreliance on hydrocarbons exposes Oman to oil price volatility.
The state over participates in the economy in both the oil and non-oil sectors; SOEs exert extensive control over numerous areas, which hinders growth and leads to an overextended public sector.
Struggles to include Omani citizens in the growth of the non-oil private sector and in its transition away from hydrocarbons.

Economic overview

Growth on the rise, thanks to undergoing effort to diversify

Oman is expected to speed up its growth in 2025 to +2.6%, after +1.5% in 2024, in line with Saudi Arabia or Qatar. Growth is expected to be fueled by a modest rise in oil production, given some partial relaxation of the OPEC ceiling on oil production. But most importantly, there will be a robust growth in non-oil activity. Food production, infrastructure construction and energy-intensive industries are forecasted to expand in 2025. 2024 was a ground-breaking year for Omani’s private sector, thanks to the IPO of 25% of the upstream arm of the oil and gas SOEs, raising more than USD2bn. This move is framed in the 2040 national plan to shift the state’s role in the economy from owner to regulator, increasing and stimulating the participation of the private sector in the economy. Together with Saudi Arabia, Oman is the only country in the GCC expected to increase FDI in terms of GDP over the long term, given that the private sector still lags behind other Gulf countries.

Year-on-year inflation is forecasted to increase to 1.9% y/y in 2025, after a year at 0.7% in 2024. Inflation in Oman will continue to remain lower than in Saudi Arabia and Qatar, as it has since the Covid-19 pandemic. The Central Bank of Oman together with the rest of the GCC monetary authorities have continued to follow the Fed’s move in block, lowering the policy rate by 50bps and 25bps in September and December 2024, respectively, maintaining stability in exchange rates. Oman has a fixed exchange rate system, with the Omani rial (OMR) pegged at OMR0.38 per USD. We expect the currency peg to hold over the next two years.

Oman’s debt profile has turned the corner since the pandemic brought government debt to 68% of GDP. Since then, the government used some of the hydrocarbon windfalls to pay off, prepay and buy back a portion of central government debt in order to better serve its maturity profile. In 2024, debt to GDP reached 34% of GDP, a -33% reduction in five years. Debt is forecasted to grow to 40% by the end of the decade. Additionally, international reserves are expected to continue to grow from the current 4.2 months of prospective imports to above 5 by 2026. However, macroeconomic uncertainties, particularly shocks resulting from oil price volatility, the realization of contingent liabilities from SOEs, given the important share of SOEs in the country’s economic activity, and difficulties in removing subsidies might impact the fiscal balance and public debt on a long-term horizon.

An economy built around hydrocarbons

A fiscal stability program was introduced after the Covid-19 oil shock. Oman started a three-year program to further the sultanate's economic recovery from the pandemic slowdown and to assist in the growth of the country's banking sector. On the back of favorable oil revenues and fiscal actions under the plan, the fiscal balance attained a surplus of +5% of GDP in 2024 and Oman is projected to remain in surplus throughout the medium term, showcasing stronger financial health than that of the UAE, Saudi Arabia or Qatar.
Oman's economy is still heavily reliant on hydrocarbons, which account for approximately 35% of GDP. Government revenue is the most dependent on hydrocarbons, bringing in 77% of total fiscal revenue since gas prices increased due to the Russian invasion of Ukraine. Revenues from natural gas increased to represent around 25% of total revenues, while oil descended from 60 to 50%. The Omani leadership has yet to take serious steps towards diversifying revenues form oil. In late 2024, the government announced that it was backtracking plans to introduce a 5% universal personal income tax agreed on and passed by Parliament in 2022, which would have only increased revenues by 2%, but would have been welcomed by international investors to diversify the revenue stream.

Exports are also highly exposed to the hydrocarbon industry, which representing over 60% of total goods exports. Oman’s export strategy has focused on using energy-intensive industries to add value to its supply chain, developing iron ore, chemicals, fertilizers and the plastic industry in the country, materializing in an increase of FDI for such industries. Energy-intensive industries have been attracting foreign investments from Asia: Chinese firms have invested in iron ore-processing and aluminum plants. The renewable energy industry has also been on the rise, fueled by green hydrogen investments. In early 2025, a new auction of land will be offered, increasing the total number of plants to six. Yet, these remain a small share compared to oil activities in the country.

With the help of oil and non-oil exports, the current account achieved its first surplus since 2014 in 2022, at +5.2% of GDP, and is expected to continue in surplus in the medium term. Sultan Haitham bin Tariq al-Said will prioritize preserving Oman's domestic unity while attempting to reconcile the need to reduce fiscal spending with preserving the current economic development trajectory. New road, rail and port infrastructure connecting Oman to the United Arab Emirates will support the growth of the logistics sector. Trade and budget surpluses expected in 2024-25 will allow the government to postpone additional spending cuts.

Neutral diplomacy and stability, the backbone of the Sultanate

Since the Cold War, Oman has maintained a neutral foreign policy, enabling the Sultanate to position itself as negotiator and bridge in international diplomacy. Oman maintains important ties with the US, being among the only countries with a free-trade agreement with the US (since 2006). It also shares strong cultural and historical ties with Iran. Leveraging these longstanding relationships, Oman has served as a venue for negotiations between the US and Iran in recent years. Muscat was an early site for the Iran Nuclear Deal Talks (JCPOA) and is frequently used as a back channel between the two rivals. Additionally, Oman has hosted talks involving various factions from Yemen.

In recent years, Oman has enlarged its international relations; in 2023, it established international relations with the Holy See. India is among Oman’s top international partners. Oman hosts one of the biggest Indian communities in the world, representing 20% of the Omani population. Historical ties dates to several millenniums and since the early 21st century, economic and defense ties have only grown further. India is Oman’s second largest export destination for non-oil exports and in recent years, Oman has become a top destination for Indian tourists. A potential pipeline linking Omani gas fields to the western Indian province of Gujarat is under study, even though its feasibility is in doubt due to high costs. In this context, and due to Oman’s neutral diplomacy, Oman maintains strong political ties with Pakistan and participates in China’s Belt and Road Initiative. Although it does not officially recognize Israel, Oman has cultivated economic and political connections with the country. Consequently, Oman is one of the few countries in the Middle East to maintain positive relations with all major global powers.

Oman remains a core member of the GCC, maintaining strong political ties with to other Gulf states. The growing physical infrastructure connecting the Sultanate to the UAE and the rest of the Gulf via railroad should boost non-oil business activity. The Sultanate shares common challenges with the rest of the Gulf, including reliance on oil, vulnerability to global oil price fluctuations and the risk associated with global decarbonization efforts. Like Saudi Arabia, Kuwait or Bahrain, Oman must persist in the path of diversification. Leveraging its diplomatic strength, Oman has the potential to attract business and investment from regional players like India and the UAE, as well as from international markets. With the new Trump Administration, Muscat could capitalize on Washington’s renewed interest in the region, serving as a bridge among various stakeholders and benefiting economically from increased US investment.

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