The Omani economy is experiencing a mixed performance though combined with improving prospects. The gross domestic product (GDP) growth is expected to post a notable result in 2018.

The fiscal challenges are becoming less serious than in 2016. The sultanate has shown exceptional ability in attracting investor interest for a $5 billion debt issue with five-, 10- and 30-year tranches.

Recently, the International Monetary Fund (IMF) as part of its “Regional Economic Outlook” offered projections for Oman’s real GDP in 2017 and 2018. It suggests a GDP growth rate of a mere 0.4 per cent in 2017 due to spending cuts and relatively weak economic activity.

However, the IMF projects a strong rebound in 2018, with GDP growth at 3.8 per cent.

Concerning the budget, the IMF notes that the deficit amounted to 20.6 per cent of GDP in 2016; the level should drop by half in 2017. The adjustment is expected via cuts in spending, more so than revenue enhancement.

Understandably, the authorities have no choice but to be careful with regard to generating new revenues. In the recent past, officials decided to freeze further increases in prices of petroleum products at the retail level to avoid angering a weary public.

Reacting to the improvement in fiscal management, the IMF has been lowering the break even point for Oman’s budget. The per barrel estimates in the budget stand at $79.2 in 2017, down from $80.1 in 2016 and $100 in 2015. The change partly reflects a slide in expenditures together with improved non-oil revenues, where possible.

The 2017 budget assumes expenditures and revenues of $30.2 billion and $22.4 billion, leaving a projected deficit of $7.7 billion.

The deficit figure represents less than 11 per cent of the GDP, sizeable but not when compared to that of 2016. Actual shortage in 2016 amounted to more than 20 per cent of GDP.

The sultanate is demonstrating capability in enticing interest from diverse international sources for its debt instruments. Earlier this year, Oman secured $5 billion. In reality, the order book for the issue stood at $20 billion, clearly demonstrating confidence in the sultanate’s economy.

Nevertheless, the debut debt issue is causing a steady rise in what it will need to pay back, projected to reach 40 per cent of GDP in 2018 versus 5 per cent in mid-2014. The sultanate with its traditional conservative policies has avoided piling government debt when there was a choice to make.

International rating agencies seem not too worried about the fiscal and debt challenges, but have confidence in Oman’s ability to overcome. Certainly, credit agencies remain annoyed with the heavy reliance on the oil and gas sector, collectively accounting for 70 per cent of treasury revenues and export earnings.

For instance, Moody’s maintains a stable outlook for the economy despite the downgrade in the country’s ratings twice in 2016, first by two notches to A3 and then later to Baa 1.

In late 2016, Standard & Poor’s affirmed a BBB-/A-3 for long-term and short-term foreign and local currency sovereign credit ratings. It downgraded the outlook to negative due to fiscal imbalance.

The talk of merging the two entities representing sovereign wealth funds is a welcome development. The proposal calls for combining the bigger State General Reserve Fund with the Investment Fund, collectively holding $25 billion.

The writer is a Member of Parliament in Bahrain.