Economic Update

Published 13 Apr 2020

As of April 12, the number of recorded Covid-19 cases in Oman stood at 599, with four fatalities and 109 recoveries.

Oman has responded incisively to the pandemic. On February 24, two citizens returning from Iran became the first recorded cases on Omani soil, prompting the immediate suspension of flights from that country.

Meanwhile, on March 15, when the total number of recorded cases stood at 22, officials introduced extensive measures limiting both entry to the country and the movement of citizens within the sultanate.

“Oman reacted swiftly to Covid-19 by completely halting the entry of cruise ships and imposing a ban on tourist visas, despite the immediate economic impact on its tourism sector,” Lujaina Mohsin Darwish, joint deputy chairperson of Mohsin Haider Darwish LLC and member of the State Council, told OBG. “However, the response was intended to ensure the protection of the population from the pandemic.”

On April 10 the government implemented a 12-day lockdown in the entire Muscat governorate, which has been the hardest hit by the virus. Travel in and out of the governorate has been stopped, while people may only leave their homes to buy groceries and in the case of emergencies.

Educational institutions, initially closed for a one-month period on March 15, will remain shuttered until further notice.

Digital transition 

Some business leaders have identified opportunities emerging from the current hardships.

“As more and more businesses are adapting to virtual meetings, companies are seeing the benefits of remote work and reduced travel costs. It is likely that these efficiencies will continue even after the current situation has been resolved,” Rishi Khimji, managing director of Ajit Khimji Group, told OBG.

The necessity of conducting most business online may accelerate digitalisation and attract investment in the ICT sector. Such a shift would align with existing strategies to bolster ICT development, a key pillar of Vision 2040, the country’s long-term development plan.

On the back of investment from the Oman Technology Fund, last month saw the launch of local start-up Behar, an online auction platform for wholesale fish markets. ‘Behar Plus’, an online retail spin-off, will allow fish sellers and stores to sell products directly to individual customers, in line with ‘stay at home’ guidelines.

The lockdown should also help accelerate a trend towards online purchases in the insurance sector.

Last year the number of insurance policies purchased online increased by 59%, according to the Capital Markets Authority (CMA), which noted that a majority of insurance companies operating in the country now offer electronic distribution channels. The CMA has been promoting the drive to electronic transactions, which are anticipated to rise even more sharply in light of the pandemic.

These developments come amid significant efforts in recent months to upgrade the country’s IT infrastructure, with further improvements expected after Covid-19 subsides.

“Given the wealth of in-country tech talent, a natural progression for us after the pandemic will be a sharper focus on Oman’s growing hi-tech sector, an area that is already generating foreign interest and investment,” Azzan Al Busaidi, CEO of the Public Authority for Investment Promotion and Export Development (Ithraa), told OBG. “Given this, I believe we will see a marked increase in the presence of Oman-made tech products and services in international markets.” 

Broader economic impact

While there are opportunities for expansion in ICT, the broader economy is facing a series of challenges related to the virus. As a result of falling demand and a production dispute between Russia and Saudi Arabia, global oil prices fell from $66 per barrel at the start of the year to as low as $25 in early April, before rallying to around $33 at the time of writing.

Despite significant diversification efforts in recent years, hydrocarbons still accounted for 35% of Oman’s GDP, 74% of revenue and 66% of exports in 2018, leaving the country particularly exposed to oil price downturns.

Relatively high levels of government debt have further constrained Oman’s capacity to deploy significant financial resources to cushion the economy from all of the immediate consequences of the pandemic.

Nonetheless, the Central Bank of Oman unveiled a $20bn economic stimulus package on March 18, providing much-needed liquidity at a time when small business owners, in particular, had started to feel the impact.

While the stimulus package will provide important relief, other resources will need to be deployed in the long term. On April 6 ratings agency Fitch projected that the sultanate’s fiscal deficit would widen to $10bn in 2020. Fiscal needs are expected to be met through a $5bn drawdown of the State General Reserve Fund, $4bn in new foreign debt and $1.2bn in foreign maturities from the Petroleum Reserve Fund. In March 2020, the agency had downgraded Oman to BB from BB+, citing erosion of its fiscal and external positions.

Overall, however, Oman is keen to project an image of economic resilience. “With 200 ships calling every week, cargo continues to flow in and out of our three principal gateways in Sohar, Duqm and Salalah, directly linking Omani businesses to 86 ports in 40 countries. That is business as usual,” Al Busaidi told OBG.