Country Economic Forecasts > Oman

The budget deficit widened by a massive 83% to OMR3.5bn in H1 2016 as total revenues slumped 32% with oil prices continuing to fall on a year-on-year basis. At the same time, spending increased nearly 2% as spending on investment and defence continued to rise, more than offsetting cuts to current items including wages and subsidies. We see the fiscal deficit at a massive 20% of GDP for 2016 as a whole far larger than in its Gulf neighbours before spending cuts together with various measures to increase non-oil revenues such as higher vehicle license costs, air departure tax and corporation tax help to reduce the deficit sharply from next year. Despite the severe fiscal challenge, headline GDP growth held up well last year at 5.7%, albeit distorted somewhat by changes in taxes and subsidies. Growth is seen slowing to 2.3% in 2016 with non-oil growth slowing to just 1.8% due to the cumulative impact of lower oil prices and fiscal consolidation on economic confidence, private consumption and government spending itself.