Since the beginning of 2024, Omani authorities have announced a quick succession of economic initiatives: a new sovereign fund entity, the country’s first government-owned investment bank, a major mixed-use development project in the Jabal Akhdar mountain range, and a new waterfront development project for the capital, Muscat. The pace and nature of these announcements resemble dimensions of the ongoing economic transformation process in neighboring Saudi Arabia. Yet the Omani government has pursued neither the most ambitious nor experimental of economic strategies: The smaller oil and gas producing Gulf state simply does not enjoy the fiscal resources to afford bold economic gambles. Instead, Omani policymakers have sought to achieve steady progress on economic reforms – described by the International Monetary Fund as “reform momentum” – while continuing to advance development initiatives.
A reinvigorated Oman under the leadership of Sultan Haitham bin Tariq al-Said is largely responsible for the domestic economic momentum. The initial years of Sultan Haitham’s rule, which began in January 2020, involved stabilizing the economy amid the coronavirus pandemic shock and addressing long-standing, systemic vulnerabilities in the economy. Omani officials demonstrated a commitment to fiscal consolidation by implementing fiscal balance programs, reduced high levels of government debt, and set about reorganizing government-related entities to minimize inefficiency and unlock new value. Following progress across these domains, Oman is poised to enter a new phase of economic policymaking, armed with new policy tools and concrete development initiatives.
A Stronger Foundation for New Policy Tools
Oman possesses an increasingly strong economic foundation to build upon. The country is on track to record fiscal surpluses for both 2023 and 2024 – Fitch Ratings estimated the 2023 surplus at 3.3% of gross domestic product while forecasting a surplus of 1.8% of GDP in 2024. Oman enjoyed a year-on-year foreign direct investment boost in the third quarter of 2023, with the United Kingdom and United States key sources of investment. Oman’s sovereign credit rating has been upgraded to one notch below investment grade.
In late 2023, the Omani government implemented a public debt law and a new tourism law intended to boost the development of the tourism sector. In early 2024, the government launched the National Programme for Fiscal Sustainability and Financial Sector Development, which has a three-year mandate to advance fiscal balance initiatives while simultaneously developing the financial sector. Observers are taking notice. Oman jumped 39 places in the Heritage Foundation’s 2024 Economic Freedom Index.
The Oman Investment Authority, the country’s sovereign wealth fund, created the Future Fund Oman in January. The new fund plans to deploy 400 million rials ($1.04 billion) per year of its total capital of 2 billion rials ($5.20 billion) over the next five years as part of efforts to boost foreign direct investment and support small- and medium-sized enterprises and startups able to contribute to the Omani economy. There will be a strong focus on partnerships that can generate more jobs for Omani citizens and increase the utilization of raw products from Oman.
The Oman Investment Authority is behind many of the country’s strategic economic initiatives. The president of the Oman Investment Authority, Abdulsalam bin Mohammed Al-Murshidi, is also the chairman of the Oman Investment Bank, the country’s first government-owned corporate investment bank, launched in February. Indeed, neighboring Saudi Arabia and the United Arab Emirates are also increasing utilization of sovereign wealth funds to advance domestic development, though the UAE has a less-centralized sovereign wealth fund sector spread out across various funds and different emirates.
New Development Projects for A New Phase
In addition to new policy tools and government-related entities, Oman has announced new development projects to support economic growth and a desired influx of residents and visitors over the coming years. In March, the Ministry of Housing and Urban Planning unveiled plans for a $1.3 billion waterfront project in Muscat. Designed by Zaha Hadid Architects, the sustainability-focused urban district will contain five dimensions: a marina, a recreational waterfront, a canal walkway, a cultural quarter, and a ministry campus. Earlier in March, the Ministry of Housing and Urban Planning announced a $2.4 billion mountaintop project, the Omani Mountain Destination, in the Jabal Akhdar mountain range. Described as a luxury, mixed-use destination, this nascent project resembles the latest subproject destinations emerging within Neom, the Saudi special economic zone gigaproject.
There is hope that existing Omani megaprojects and investment initiatives will both benefit from and reinforce the growing sense of economic momentum in Oman, creating a virtuous cycle. The special economic zone at Duqm remains a high-priority megaproject for the government. Recent Houthi attacks on ships in the Red Sea have reinforced Duqm’s strategic location on the Arabian Sea and outside of the Strait of Hormuz and Bab el-Mandeb. Oman has set ambitious targets for green hydrogen production and plans to become a regional powerhouse in this space. The government-owned Hydrom was launched in 2022 to structure and accelerate green hydrogen development and is leading efforts to attract investments into the sector.
The Oman Investment Authority is pushing ahead with plans to sell shares in government-related entities. Following a successful initial public offering in October 2023 of the gas pipeline business of OQ, Oman’s national oil company, which raised $750 million, portions of other government assets are in the privatization pipelines. In February, Oman appointed Lazard to advise on the IPO of the Oman Electricity Transmission Co., and other offerings of government assets are likely to emerge over the near term. Maintaining economic and reform momentum is crucial for capitalizing fully on share offerings.
Of course, the economic picture is not entirely rosy – Oman confronts various challenges. Slow-moving progress on economic diversification is a perennial problem. Government revenue remains closely linked to the oil and gas sector and continues to serve as a major driver of growth; the 2024 budget projects that the oil and gas sector will account for 68% of government revenue. The initial 2023 budget planned for the oil and gas sector to contribute 67% of government revenue, but preliminary results from 2023 indicate that the actual figure was closer to 73%, according to KPMG. Moreover, the National Centre for Statistics and Information estimated that nearly 77% of Oman’s foreign direct investment stock is directly tied to the energy sector. Translating foreign direct investment and state-led development into high-quality, high-paying jobs for Omani nationals is another significant challenge. Labor-related grievances are contentious in the sultanate, which has witnessed protests over employment in recent years.
Omani government and business actors must also mitigate the risk of being overshadowed by economic development processes in larger, neighboring Gulf states. Thus far, the Omanis have sought to manage regional competition in part by forming partnerships with neighboring counterparts and seeking positive spillovers. For instance, Oman and Saudi Arabia launched a joint tourism program (Oman’s niche tourism industry has long functioned as a pillar of the country’s economic diversification efforts). The two countries also agreed to cooperate on economic zone development. Moreover, Omani participation – led by the Omani Ministry of Transport, Communications, and Information Technology – in Saudi Arabia’s tech-focused LEAP conference in March resulted in the signing of 20 smaller-scale agreements across several fields.
The Middle East has no shortage of economic challenges – and hot regional conflicts have not made economic policymakers’ jobs any easier. The ongoing, devastating Israel-Hamas war continues to have the potential to escalate into a regionwide conflict. Meanwhile, disruptive Houthi attacks in the Red Sea threaten a wide range of commercial interests. Yet, for the time being, Oman’s economic domain offers a bright spot in a tense, troubled region. The absolute results of Omani economic policymaking may be modest when compared across the region, but that does not detract from a solid achievement and stronger economic foundation to build upon over the coming years.
