Oman

Financing conditions have improved, as demonstrated by Moody’s upgrade of Oman to investment grade (Baa3) in July 2025 with a stable outlook, supporting market access and helping contain sovereign funding costs. Oman’s debt profile has turned the corner since the pandemic when government debt to GDP stood at 68% in 2020, using hydrocarbon windfalls to pay off, prepay and buy back a portion of central government debt to better serve its maturity profile. In 2025, debt to GDP reached 35.1% of GDP, a -33% reduction in five years, and it is forecasted to continue to decrease. Moody’s also indicated that banking sector risks are contained but concentration is high; a sharper slowdown, payment delays in construction or tighter liquidity could lift corporate distress and insolvencies.

Fiscal and external balances are projected to remain broadly solid in 2025-26. The decision to introduce a personal income tax from 2028 (5% above OMR 42,000) should modestly broaden the revenue base and signal reform commitment. Furthermore, Oman's economy is still heavily reliant on hydrocarbons, which account for approximately 35% of GDP.  Oil and gas revenues are forecasted around 68% of overall receipts. 

The current account went negative in 2025 to -1.0% of GDP from +2.9% in 2024. It is projected to slightly improve to -0.7% in 2026. Exports are also highly exposed to the hydrocarbon industry, which represents 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, especially from China. 

Political stability remains a relative strength. The leadership’s priority is to preserve domestic cohesion while keeping the reform agenda on track, implying a balancing act between fiscal discipline, public investment and employment creation. 

Externally, Oman’s neutral diplomacy supports its role as a mediator, but the economy is exposed to any escalation around the Strait of Hormuz or Red Sea that would disrupt trade, tourism and investor sentiment. Relations within the GCC remain important for trade. In recent years, Oman has enlarged its international relations. 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. Yet, due to its neutral diplomacy, Oman also 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.

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. 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.