Sound economic management, a revival in hydrocarbons prices and a series of new development plans are combining to make Oman an increasingly attractive destination for foreign investment in the Gulf region. Growth is robust, while the sultanate’s excellent relations with its neighbours and global powers are boosting its international trade. Oman’s geostrategic location helps with this, as it borders both the Gulf and the Indian Ocean. Domestic stability is also strong, under the leadership of Sultan Haitham bin Tariq Al Said, who is building on the policies of Sultan Qaboos bin Said Al Said. Central to that was diversification, with Oman now reaping the rewards of that strategy’s long-term implementation.
Advancements are being made in the rollout of Oman Vision 2040, the sultanate’s economic development plan, with March 2024 seeing the launch of the $5.2bn Future Fund Oman. This targets green energy, manufacturing, maritime resources, technology and tourism. Focusing on encouraging private sector investment in these areas, the fund will be a driving force in Oman’s growth. That development will also be increasingly green, with Oman already investing heavily in the global energy transition.
Governance & Oversight
The sultan presides over the government of Oman, also known as the Council of Ministers, or Cabinet. The sultan may also convene a Council of State, comprising a lower and upper chamber. Economic policy, along with defence, security and foreign affairs, are normally decided by the sultan, in consultation with his ministers.
Oman is administratively divided into governorates. The largest of these is the southern governorate of Dhofar. The governor of Dhofar also has cabinet rank in recognition of the district’s importance. Much of Oman’s economic activity is concentrated in the northern districts in and around Muscat.
The Ministry of Economy and the Ministry of Finance (MoF) are the central government bodies responsible for economic and financial policy design, monitoring and implementation, aided by the Central Bank of Oman (CBO). Other key bodies include the Oman Investment Authority (OIA), established in 2020 as the sultanate’s sovereign investment arm.
Investment Funds
The OIA manages three funds: the National Development Portfolio, which contains over 160 national companies and assets; the Future Generations Fund, which consists mainly of international assets, along with some domestic; and Future Fund Oman. The OIA often works in partnership with other government bodies, such as the MoF and the Small and Medium-sized Enterprise Development Authority (SMEDA). The latter provides assistance to a business segment in which a majority of the sultanate’s residents work, with the SME Development Fund also working to assist these key companies.
Further investment bodies include the Oman Development Bank; Rakiza, Oman’s infrastructure fund; and the Oman Technology Fund, which was established in 2016 and invests in various incubators, accelerators and venture capital programmes. The Public Authority for Investment Promotion and Export Development aims to boost foreign investment in the sultanate, while the Investment Services Centre was created after the passage of the 2019 Foreign Capital Investment Law, which also removed limits on foreign shareholdings in Omani companies.
Given the crucial role of hydrocarbons in the sultanate’s economy, another important body is Petroleum Development Oman (PDO). The government holds a 60% stake in PDO, represented on the board by the Ministry of Oil and Gas. Private shareholders include Partex, Shell and Total. PDO is responsible for around 70% of Oman’s crude oil production and almost all of its natural gas supply.
Another important organisation is the Public Authority for Special Economic Zones and Free Zones (OPAZ). Established in 2020, OPAZ supersedes the different free zone and special economic zone authorities that came before, such as the Duqm Special Economic Zone Authority and other authorities in Al Mazyunah, Salalah and Sohar. OPAZ brings all these under one roof, while maintaining the benefits available to those companies that had been located within the previous authorities’ zones. In July 2023 OPAZ also announced the establishment of the Khazaen Economic City in South Al Batinah, which will contain two new free zones.
Internationally, Oman is a member of the World Trade Organisation, the IMF, the World Bank, the UN, the GCC and the Pan-Arab Free Trade Area. The sultanate also has trade agreements with Singapore and the US, and has announced agreements with Australia, the European Free Trade Area and Japan, via its membership of the GCC. Oman is not a member of the Organisation of Petroleum Exporting Countries (OPEC), but is a participant in OPEC+.
Structure
Prior to the start of commercial oil and gas production in 1967, Oman’s economy was primarily agricultural, with fisheries and trade around the Arabian Sea its main sources of wealth. Following that discovery, however, rapid economic growth saw major infrastructure modernisation, along with a long-term commitment to diversification through manufacturing, services and trade.
A significant increase in population accompanied the sultanate’s economic growth. According to the National Centre for Statistics and Information (NCSI), the sultanate was home to 5.5m people in early 2025, up from some 622,000 when commercial production of oil began. Many of those inhabitants – some 43.3% – are expatriates, attracted to Oman by its flourishing economy and high standard of living. The country’s population is concentrated in and around Muscat, with this and its surrounding governorate recording a population of 1.5m, or 39.4% of the country’s total, in November 2024.
According to NCSI figures, GDP at constant market prices was OR38.1bn ($99bn) in 2023. By sector, total petroleum activities accounted for around OR12.2bn ($31.7bn) that year, while non-petroleum activities accounted for OR26.8bn ($69.7bn). Those non-petroleum activities further divided into services, at OR17.9bn ($45.6bn); industry, at OR8bn ($20.8bn); and agriculture and fishing, at OR960.8m ($2.5bn). Within the industrial sector, the two largest contributors in 2023 were construction, which contributed OR3.5bn ($9bn), and manufacturing, with OR3.3bn ($8.7bn). Within services, public administration and defence accounted for OR3.5bn ($9.1bn) that same year, wholesale and retail trade OR3bn ($7.8bn), and transport and storage OR2.1bn ($5.5bn).
While the sultanate subsidises electricity, fuel and water, these subsidies are being phased out, with 2021 seeing electricity subsidies removed completely for expatriate households. A target date of 2025 had been set for the removal of subsidies from Omani households. Lower income households will continue to be assisted after this date by a new, national support system. In August 2022, however, this target date was extended to 2031 for electricity subsidies for Omani households.
Government-owned enterprises play a significant role in Oman’s economy, accounting for around 31.4% of GDP in 2022. These include Oman Airports, energy company OQ, utilities holding company Nama Group, telecom Omantel, and oil and gas explorer Energy Development Oman (EDO). In recent years the OIA has taken over management of all non-financial government-owned entities, with the goal of streamlining them and divesting some of their functions. This is being undertaken to reduce government debt, with Omantel a particular focus.
In April 2021 Oman introduced value added tax (VAT) to boost revenue and give more resilience to public finances. The Oman Tax Authority administers VAT, with a standard rate set of 5% and a registration threshold of OR38,500 ($100,000). There is no personal income tax (PIT) in Oman, although in July 2024 Oman’s parliament passed a draft law to introduce a PIT in the range of 5% to 9%. Omanis with a global income above $1m would be charged a flat rate, whereas expatriates would be taxed for income exceeding $100,000. In September 2023 credit rating agency Fitch estimated that the introduction of a PIT would increase revenue by just 0.2% of GDP.
Monetary Matters
In common with many other GCC countries, Oman’s currency, the Omani rial (OR), is pegged to the US dollar. This has given the currency long-term stability, with the rate remaining unchanged at OR1: $2.60 since 1986. This currency peg also means that interest rates in Oman must move in line with changes to the US Federal Reserve rate. In recent years, this has moved strongly upwards, as the US economy has attempted to battle inflation – a global phenomenon in recent years, following the Covid-19 pandemic and Russia’s invasion of Ukraine, amongst other macroeconomic factors.
Initially, the pandemic depressed global economic activity, with lockdowns and travel bans seeing oil and gas prices tumble and trade stutter. In Oman, the consumer price index (CPI) recorded a deflationary -0.9% for 2020 as a result, according to World Bank figures. By the following year, however, the CPI had risen to 1.7%, then 2.5% in 2022, as inflationary pressures took hold. Since then, however, the CPI has slid downwards, with NCSI figures showing an average of 0.6% in the January-November 2024 period.
Base Rates
Interest rates, meanwhile, have undergone 11 successive rate increases since March 2022, when the US Federal Reserve began monetary tightening. The CBO in turn raised its repo rate by a total of 550 basis points, in tandem with these moves. The last hike was in July 2023, when the CBO raised this rate from 5.75% to 6.00%. It remained there until late 2024, when the CBO began to ease rates, first to 5.5% in September 2024, then 5.25% in November and 5% in December of that year. The cycle of rate hiking has also helped strengthen the rial. This can be seen in the real exchange rate index, produced by the NCSI. Measuring the rial’s performance against a basket of other currencies, this index showed a 2.7% hike in the first half of 2024, year-on-year.
In terms of credit conditions, however, the rate hikes may have limited credit growth to some degree. Nonetheless, a strong economic recovery in Oman saw credit strike some new highs, overall, in 2022 and 2023. IMF figures show credit in the economy rising 4.1% in 2021, then 4.3% in 2022 and 6% in September 2023. This was driven largely by hikes in private sector credit, with this showing 6.2% annualised growth in September 2023. Meanwhile, public sector credit slowed from 19.4% growth in 2021 to 5.2% in September 2023. NCSI figures for December 2024 showed the impact of this and overall growth with broad money supply up 12.6% year-on-year, to OR23bn ($59.8bn). Narrow money supply was up 24.8% over the same period, reaching OR6bn ($15.6bn).
Balance Of Trade
Government expenditure is financed in large part by exports of oil and gas, with revenue from these equivalent to 32.3% of GDP in 2022, according to IMF figures. Non-hydrocarbons and grant revenue was equivalent to 7.4% that same year. In dollar terms, exports of oil and gas amounted to $43.1bn in 2022, with all other exports totalling $23bn. Total imports came to $34.7bn, leaving Oman with a current account surplus of $5.8bn that year.
NCSI figures for the end of September 2024 show that the largest items among non-oil and gas exports were mineral products – which accounted for OR1.3bn ($3.4bn) out of the OR4.5bn ($11.8bn) non-oil total – and base metals, which accounted for OR991m ($2.6bn). Key export markets for nonoil were the UAE, with OR737m ($1.9bn) of the total; Saudi Arabia, with OR602m ($1.6bn); and South Korea, with OR515m ($1.3bn). Oil and gas exports, meanwhile, accounted for OR12.4bn ($32.2bn) during the same period, with OR7.6bn ($19.8bn) of the total accounted for by crude oil and OR3bn ($7.8bn) by refined oil. A further OR1.8bn ($4.7bn) was earned from exports of liquefied natural gas.
Key items among imports, meanwhile, included OR3.5bn ($9.1bn) in mineral products, OR2.1bn ($5.5bn) in electrical equipment and machinery and OR1.1bn ($2.9bn) in chemical products. Total imports were OR12.2bn ($31.7bn), meaning that the sultanate recorded another healthy trade surplus, as total merchandise exports were OR18.2bn ($47.3bn) over the same period. Key source countries for imports were the UAE, with OR2.9bn ($7.5bn) of the total; China, with OR1.3bn ($3.4bn); Kuwait, with OR1.2bn ($3.1bn); and India, with OR1.1bn ($2.9bn).
Foreign direct investment (FDI), meanwhile, totalled OR26bn ($67.6bn) as of the end of the second quarter of 2024, compared to OR25.4bn ($66bn) for all of 2023. The vast bulk of this was in oil and gas, which attracted some OR20.3bn ($52.8bn), with manufacturing second, at OR2.1bn ($5.5bn). Financial intermediation, the process of connecting lenders and borrowers, received OR1.4bn ($3.5bn), while real estate received OR1bn ($2.6bn). The main source countries for FDI were the UK, with OR13.2bn ($34.3bn); the US, with OR5.1bn ($13.2bn); and the UAE, with OR856m ($2.2bn).
Labour & Capital
The sultanate’s workforce consisted of some 2.7m people in 2023, according to NCSI data. Of this total, some 1.9m were employed by the private sector, while approximately 420,000 worked in the government. An additional 405,000 were employed with families as domestic workers. Of the 241,000 businesses registered in Oman in 2023, around 85.6% were micro-sized, 13.3% small, 0.8% medium and 0.3% large.
As in many GCC countries, the majority of expatriates are employed by the private sector, while the public sector primarily employs Omani nationals. Indeed, NCSI figures show a total of 853,204 Omanis employed in December 2023, with the numbers split roughly in half between the public and private sectors. For expatriates, however, just 44,178 worked in the public sector while 1.5m worked in the private. An additional 328,900 worked for families as drivers, maids and other household staff.
Recent years have seen efforts by the government to change this pattern and increase the numbers of Omanis working for and owning their own private enterprises. This process – known as Omanisation – has involved imposing limits on expatriate numbers in the public sector and in particular industries. As a result, the civil service, for example, was 88.6% Omani by February 2023.
In July 2023 Oman issued a new Labour Law, which includes a series of incentives to private sector employment. Allowances for paternity and maternity leave, sick leave, time off for child care and bereavement are included. Payment for these new and extended periods of leave is the liability of a new Social Protection Fund, established under the Social Protection Law, also launched in July 2023. Among other regulations, this second law reduces the maximum number of hours that can be worked to eight per day in a 40-hour week, and introduces a mandatory 30-days paid annual leave package for employees after six months of service.
Both laws have been widely welcomed by both employers and employees. By aligning labour conditions in the private and public sectors, the hope is that an increasing number of Omanis will choose to work in the private sector. This should also help tackle two further challenges: relatively high youth unemployment and high public sector spending.
Overall, in October 2024, job seekers accounted for 4.3% of the Omani population, yet among the 15-24 age group the figure was 17.5%. Broken down by gender, the female unemployment rate overall was 12.0% to 2.3% of males; for the 15-24 age group, female unemployment was 27.8% to 15% for males.
Oman has been making a determined effort in recent years to generate jobs in the private sector, seeing this as a more sustainable way of securing long-term growth. This policy was given greater impetus by recent periods of low oil and gas prices, when Oman’s revenue fell. Indeed, the government had been running a series of deficits up until 2022, with the Covid-19-related fall in hydrocarbons prices in 2020 and 2021 adding to the woes of the period post-2014, when prices had fallen quickly from historic highs. Protecting the economy from this volatility is therefore a key driver behind efforts to make long-term structural changes to the economy. In January 2021 these changes were crystallised in the Oman Vision 2040 plan.
Planning The Future
Oman Vision 2040 is a 20-year development strategy that addresses every aspect of life in the sultanate. Four basic pillars make up the plan: a competitive economy, a society of creative individuals, responsible agencies and an environment with sustainable components. Each of these has specific indicators assigned to enable effective monitoring of progress within each pillar.
Over the 20-year period, Oman Vision 2040 sets a real GDP growth target of 5%, a target for FDI of 10% of GDP, a non-oil share of GDP of more than 90% and a 40% share of private sector employment taken by Omanis. Other goals include real GDP per capita growth of 90% over the plan period and a series of improvements in markers such as the global competitiveness and innovation indexes. Oman also aims to rank within the top 20 countries worldwide in terms of environmental performance, and the top-10 countries in terms of governance.
Progress has also been made in several fields since the plan’s launch. The medium-term fiscal plan for 2020-24 has seen a strengthening of fiscal discipline, both in terms of revenue and expenditure. The windfall hydrocarbons profit of 2022-24, as oil and gas prices bounced back, have been invested in reducing the sultanate’s debts, with the fiscal balance returning to surplus in 2022. Central government debt as a share of GDP fell from 61.3% in 2021 to 39.9% in 2022, as this process of debt reduction took effect. Total public debt was at a six-year low of $39.5bn at the end of 2023, with further falls widely forecast as oil and gas prices continue at relatively high levels.
A key part of reducing government debt has also been to reduce the debt of Oman’s government-owned enterprises via a number of de-leveraging and divestment initiatives. These, along with better overall performance, brought government-owned enterprise debt down from 40.7% of GDP in 2021 to 29.9% in 2022.
Meanwhile, the OIA has announced a series of forthcoming initial public offerings (IPOs) of government owned entities, or their or spin-offs. Notably, an IPO for OQ Gas Networks raised OR288.2m ($749m) in October 2023. A spree of energy sector IPOs is now widely forecast, with the new Financial Services Authority spearheading this from 2024. The IPOs should also inject further impetus into the sultanate’s capital market, the Muscat Stock Exchange.
Future Fund
Taking the next step with Oman Vision 2040, the OIA announced the launch of Future Fund Oman in January 2024. The fund has the dual goals of attracting more FDI and boosting investment in SMEs. Some OR2bn ($5.2bn) is to made available for the initiative over a five-year period, or OR400m ($1bn) per year. Of that total, around 90% will go to new or existing projects, with 7% going to SMEs and the remainder to start-ups.
The fund will also target eight sectors specifically: agriculture, fisheries, green energy, ICT, industry and production, mining, ports and logistics services, and tourism. Future Fund Oman’s offering includes a provision enabling it to finance projects up to OR100m ($250m) in size – a considerable increase on the previous upper limit of OR5m ($13m). The fund can act as a capital partner, as well as a lender, with a maximum 40% stake in any capital partnership. The flexibility of the new fund should be a major benefit to start-ups, with the special provision for SMEs making it a potential partner for many businesses traditionally outside the established frameworks for financing. Backing up the Fund’s activities will be the MoF and SMEDA, with the funding mechanism one of either direct financing at market cost, or via a capital partnership with a private sector entity.
Outlook
As a result of the strong return to growth, buoyant oil and gas prices, and prudent fiscal management, recent years have seen the sultanate’s economy making some positive headlines. Fitch upgraded Oman’s long-term foreign currency issuer default rating to BB+ from BB in September 2023, citing a rosy picture for hydrocarbons and the government’s decision to pay down debt and spread its maturity as key to this hike. That same month, S&P also upgraded the sultanate to BB+, noting its economy’s improved resilience to external shocks. The credit rating organisation forecast an average of 2% GDP growth over the 2023-26 period. Both agencies saw this sustained economic expansion as coming despite a forecast slowdown in growth in 2023-24, due to voluntary cuts in oil output, as part of Oman’s compliance with OPEC+ decisions.
Oman has also been widely praised for its concentration on a green energy transition. The sultanate has pledged to decarbonise its economy by switching to renewables and low and zero-carbon fuels by 2050. Green hydrogen has been a particular focus, as has a novel system of awarding concessions for utility scale hydrogen projects based on large concession blocks of land and sea – as in oil and gas. As all these factors work together, along with continuing elevated oil and gas prices, the year ahead is set to be a strong one for the sultanate, with continuing growth and diversification driving new development.
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