With limited oil resources, Oman faces challenges of economic diversification, structural reform

AuthorUgo Fasano
PositionIMF Middle Eastern Department
Pages254-257

Page 254

Continued high dependence on oil, limited oil resources, and a rapidly rising young domestic labor force have heightened the need to further diversify the Omani economy. Thus, the discovery of natural gas resources in the early 1990s stimulated a new diversification drive in recent years based on a bold and ambitious outward-oriented, gas-based industrial growth strategy, while further promoting the development of the service sector. This strategy is also supported by broad structural reforms and prudent fiscal and monetary policies. This article looks at the achievements and the challenges ahead for the Omani economy in the pursuit of this strategy.

Background

In contrast to some of its neighboring countries, Omana member of the Cooperation Council of the Arab States of the Gulf (GCC)has limited crude oil resources that are projected to last less than 20 years based on current proven reserves and production levels.

(Oman, together with Bahrain, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates, all oilexporting countries, established the GCC in the early 1980s to foster close economic cooperation and regional integration.) However, since the commercial development of oil began in the mid-1970s, Oman has used these limited resourceswithin a liberal trade and exchange systemto create a modern physical and social infrastructure. An open-door policy to foreign labor has also provided the skills at internationally competitive wages to help develop non-oil activities. In addition, Oman's prudent use of its oil revenue has also contributed to the accumulation of financial wealth administered by the State General Reserve Funda government savings fund established in 1980 to replace dwindling oil resources.

Although the government's efforts toward economic development have led over time to an increase in the non-oil sector's contribution to GDP, exports, and government revenue, the Omani economy has remained highly vulnerable to oil price fluctuations (see Chart 1, page 255). This vulnerability was evident in 1998 when world oil prices collapsed, and Oman lost the equivalent of 14 percent of GDP in crude oil export earnings.

At this time, crude oil still contributes some 40 percent to GDP and accounts for more than 70 percent of fiscal and export receipts. Strains in the employment market for Omani citizens also emerged in the 1990s owing to a rapidly increasing young local labor force, which, until recently, had found jobs mainly in the government sector. These developments highlighted...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT