Oman’s Economy Shows 1.4% Average Inflation Over 3 Years

Oman’s inflation rate has shown remarkable stability with a 1.4% average from 2021 through 2024. The country managed to keep its inflation levels well below the 2.8% target outlined in its Tenth Five-Year Development Plan (2021-2025), while global markets faced major fluctuations.

The country’s economic performance grew stronger as inflation dropped from 0.94% in 2023 to 0.60% in 2024. Regional differences emerged across Oman’s territories – Musandam topped the list at 1.32% while Muscat recorded the lowest rate at 0.32%. The national inflation rate stayed under control thanks to smart monetary policies and enhanced public spending programs.

Oman Maintains 1.4% Inflation Despite Global Pressures

Oman has successfully managed its economy by keeping inflation under control during global economic uncertainty. Consumer price inflation dropped to 0.6% between January and October 2024, down from 1.0% in 2023. This shows how well the country handled its monetary policies.

The country took early steps that helped keep inflation moderate even when global prices peaked in 2022. The average inflation rate stayed at 1.7% from 2021 to 2023, which was better than the 2.8% target set in the Tenth Five-Year Plan.

Price changes varied among different sectors. Transportation costs went down by 2.6%. Food and non-alcoholic beverages became 3.5% more expensive, while health services saw a 3.2% price increase.

The government took specific steps to keep inflation in check:

• Fixed fuel prices at October 2021 levels
• Subsidized simple food items
• Added tax exemptions to 513 items

The Central Bank of Oman raised its policy rate by 550 basis points since 2022 to match Federal Reserve decisions. This change led to more lending – credit grew by 4.3% in 2022 and reached 6.0% by end-September 2023.

Strong financial management helped Oman achieve a surplus of 2.2% of GDP in 2023. This allowed the government to reduce its debt-to-GDP ratio to 36.0% in 2023 from 40.2% in 2022.

The Ministry of Economy watches price changes in governorates of all sizes through the Governorates Competitiveness Index. This helps them spot price differences and understand what causes them, so they can act quickly to keep markets stable.

The Ministry of Economy expects inflation to stay moderate within planned ranges. The government remains dedicated to funding essential services like health, education, and housing. They prioritize better living standards even when money is tight.

Central Bank Implements Effective Monetary Controls

The Central Bank of Oman (CBO) keeps strict control over monetary policy through its fixed exchange rate system. The Omani rial stays pegged at USD 2.6008. This approach works well to manage inflation and promote economic stability.

The CBO matched the Federal Reserve’s policy changes due to global monetary tightening. They raised rates by 550 basis points in total. The weighted average interest rate on deposits grew to 2.065% by December 2022, up from 1.910% in December 2021.

Here’s how the CBO controls monetary policy:

• Open Market Operations through Certificates of Deposit issuance
• Repurchase Agreements using government securities
• Reserve Requirements and Lending Ratio adjustments
• Prudential regulations for banks

The banking sector showed strong performance under these controls. The total assets reached RO 41.8 billion with a 7.8% increase. The sector managed to keep solid financial indicators that include:

• Capital Adequacy Ratio of 18.9%, which is a big deal as it means that it exceeds the 12.25% regulatory requirement
• Non-performing loans at 4.5%
• Total credit growth of 4.3% to RO 30.5 billion
• Deposit growth of 12.3% to RO 29.1 billion

The monetary base grew by 1.0% in 2023, while broad money increased by 13.1%. These monetary figures show how well the CBO manages liquidity in the banking system.

The fixed peg system acts as a trusted nominal anchor that helps keep domestic inflation below global levels. This policy framework combined with measures like utility subsidies and VAT exemptions on essential goods helps control inflation pressures effectively.

The CBO now focuses on boosting its liquidity management framework. They want to develop money markets and bring in new monetary tools. These changes will help improve monetary policy transmission and build deeper financial markets in Oman’s economy.

Regional Variations Tell Different Stories

Oman’s governorates show notable differences in inflation rates that reveal complex regional economic patterns. Musandam Governorate leads with a 1.7% inflation rate, while Al Dakhiliyah follows at 1.5%.

Al Batinah South has kept its inflation rate low at 0.4%, which shows how economic conditions vary throughout the sultanate. Al Sharqiyah South sits at 1.4%, yet Al Sharqiyah North sees just a small 0.3% uptick.

Let’s take a closer look at how inflation rates spread across regions:

• Northern Regions:
  • Muscat Governorate: 0.6%
  • Al Buraimi: 0.7-0.8%
  • Al Batinah North: 0.8%
• Southern and Central Regions:
  • Dhofar: 0.6%
  • Al Wusta: 1.6%
  • Al Sharqiyah South: 1.9%

Regional economic activities and local market conditions drive these differences. The Ministry of Economy keeps track of these variations through its Governorates Competitiveness Index, which monitors regional prices and market trends.

Stable prices in housing, utilities, communications, and tobacco have helped control inflation rates across regions. Different sectors feel uneven effects, which shows how complex it is to manage price stability in Oman’s varied economy.

Government measures work well to curb inflation pressures. Stable fuel prices and support for essential food items have proven effective, especially in Al Batinah South and Muscat where inflation stays low.

The International Monetary Fund recognizes Oman’s success in managing regional inflation. They expect stability to continue with rates around 1.3% in 2024 and 1.5% in 2025. This puts Oman among GCC nations that handle inflation most effectively, which stands out given today’s global economic challenges.

Oman has become a shining example of economic stability by successfully managing its inflation rates. Since 2021, the country’s average inflation rate of 1.4% shows how well its detailed economic strategy works. The sultanate’s economic landscape varies across regions, with Musandam showing 1.32% while Muscat reports 0.32%.

The government’s targeted interventions and the Central Bank of Oman’s monetary controls have built a strong economic framework. Fixed fuel prices, subsidies on essential commodities, and broader VAT exemptions have helped stabilize the economy. These policies have proven successful, as shown by the banking sector’s impressive 7.8% growth in total assets.

Economic forecasts look promising, with inflation rates expected to stay within target through 2025. Oman leads other GCC nations in managing inflation effectively, which stands out even more during these uncertain global economic times. The country’s steadfast dedication to balanced growth and price stability creates a robust foundation for future economic success.