After coming out of a contractionary phase, the Omani
economy witnessed a good nominal growth for the second year in
succession, supported by expansion across all major economic
activities. Notably, besides higher oil prices, traction in
diversification also contributed to the economic recovery.
Furthermore, the reduced fiscal deficit and improvement of
external conditions helped in the journey towards reinstating
Nonetheless, twin deficits remain a challenge, but the
government is committed to structural measures to restore
balance. The government has recently introduced new excise tax
to augment non-hydrocarbon revenue. Inflationary conditions in
Oman, which are contingent largely on imported inflation,
remained benign in the last few years.
Given the currency peg with the US dollar and the open
capital account, monetary policy has a very limited scope in
Oman. However, regulatory measures, such as loans-to-deposits
ratio, allows some monetary policy independence to the Central
Bank of Oman (CBO). The domestic interest rates hardened in the
recent past following normalisation of monetary policy in the
US. The CBO, however, continues to act proactively to ensure
availability of appropriate liquidity in the system so that
liquidity squeeze does not hamper credit availability.
Turning to regulatory practices, all international best
practices, such as Basel III guidelines, are generally followed
in Oman. Banks have to maintain the minimum capital adequacy
ratio (CAR) of 11% along with additional capital buffers (CAR
stood at 17.9% at end-2018). The liquidity coverage ratio (LCR)
and the net stable funding ratio (NSFR) have also been
implemented and the banking sector maintained the LCR and NSFR
at 254% and 115%, respectively, as of end-2018.
During the recent global financial crisis, 'too big to save'
posed a policy dilemma in some jurisdictions as opposed to 'too
big to fail' in others. To deal with such dilemmas, a robust
bank resolution framework could be very effective, allowing
self-propelled recovery for banks and should the situation
warrants, permitting authorities to resolve them in an orderly
manner. In April 2019, the CBO issued the Bank Resolution
Framework for Oman and became one of the first central banks in
the region to do so.
Presently, banks and central banks worldwide are handling
the fintech wave. Innovations brought by fintech are certainly
helping to further deepen and improve efficiencies in financial
systems. Fintech companies are improving financial inclusion by
providing unbanked households and firms with access to credit
and other banking services. At the same time, fintech poses
some regulatory challenges, especially given the scale and
complexity of instruments.
Another challenge is presented by crypto-currencies, which
remain unregulated. Virtual currencies could potentially
undermine monetary policy's ability to achieve its stated
objectives as well as financial stability. Hence, it may be
prudent for central banks to float their own virtual currencies
to counter the proliferation of unregulated virtual
Notwithstanding various macroeconomic and regulatory
challenges, Oman is poised for a reasonable growth outlook over
the medium-term. The appropriate policy responses are being
taken to deal with the evolving challenges. The CBO continues
to support economic activity by ensuring appropriate liquidity
in the banking system and fostering financial stability.