Between 2021 and 2024, the Sultanate of Oman successfully maintained an average inflation rate of approximately 1.4%, staying well within the 2.8% target set for its tenth five-year development plan (2021-2025). This achievement underscores Oman’s effective economic strategies and resilience in the face of global economic fluctuations that caused higher inflation rates in many other countries. The combination of careful fiscal policies, monetary control, and strategic spending played a crucial role in keeping inflation under control.
Economic Growth Outpaces Inflation
During this period, Oman’s economy demonstrated robust growth, with the Gross Domestic Product (GDP) at constant prices averaging a 3.9% increase from 2021 to 2023. This growth trajectory indicates that the nation’s economic expansion outpaced inflation, reflecting a healthy and dynamic economy. The ability to achieve such growth amidst rising global uncertainties showcases Oman’s effective governance and economic planning. A diversified economy, with strategic investments in sectors such as energy, tourism, logistics, and manufacturing, has contributed significantly to this growth. Moreover, the government’s focus on reducing reliance on oil revenues by promoting non-oil sectors has helped stabilize the economy.
Fiscal Policies and Public Spending
In the 2025 fiscal year, Oman increased public spending to approximately OMR 11.8 billion, up from OMR 11.65 billion in 2024. This budget allocation includes significant investments in social protection schemes (OMR 577 million), subsidies for development and housing loans (OMR 73 million), and support for essential sectors such as electricity (OMR 520 million), water and wastewater (OMR 194 million), and other vital services (OMR 216 million). These strategic allocations aim to bolster economic stability and enhance the quality of life for Oman’s citizens.
This increase in public spending was carefully managed to prevent any inflationary pressures. By channeling funds into infrastructure and public services, the government not only addressed immediate needs but also created a conducive environment for long-term economic growth. Investments in housing and utilities have particularly helped moderate living costs, preventing sharp spikes in housing-related expenses, which are a significant component of the consumer price index.
Monetary Policy and Interest Rates
With the Omani Rial pegged to the US Dollar, the Central Bank of Oman (CBO) has aligned its monetary policies with the US Federal Reserve to balance liquidity and control inflation. In 2024, the CBO reduced the interest rate on repurchase operations for local banks, bringing it down to 5% by the year’s end. This move reflects a shift towards monetary easing following a decline in the inflation rate.
By adjusting interest rates, the CBO effectively managed liquidity in the economy. Lower interest rates made borrowing more attractive for businesses, supporting investments and expansion without triggering excessive inflation. Additionally, the pegged exchange rate provided stability in import prices, which is significant for a country that imports a substantial portion of its consumer goods.
Declining Inflation Rates
Annual inflation data indicates a continued decline in the inflation rate based on the consumer price index. The average annual inflation stood at approximately 0.60% from January to December 2024, compared to about 0.94% during the same period in 2023. This downward trend suggests effective management of inflationary pressures within the country.
One of the key factors behind the low inflation was the stability of global oil prices, which significantly impact Oman’s economy. The government’s efforts to control public debt and prudent fiscal management also contributed to keeping inflation in check. A balanced approach to subsidies, particularly for essential commodities, ensured that price shocks were minimized.
Sector-Specific Price Changes
In December 2024, Oman’s annual inflation rate increased to 0.7% from 0.5% in the previous month. This uptick was primarily driven by price increases in several sectors:
- Food and Non-Alcoholic Beverages: Prices rose by 1.7%, with notable increases in vegetables (8.9%), fruits (8%), and dairy products including milk, cheese, and eggs (5.4%). Supply chain challenges and fluctuations in global commodity prices contributed to these increases.
- Healthcare: There was a consistent 3.2% increase in healthcare costs, driven by rising costs of medical services and imported pharmaceuticals.
- Clothing and Footwear: Prices in this category saw a modest rise of 0.5%, likely due to higher import costs and seasonal demand.
- Restaurants and Hotels: This sector experienced a 0.8% increase in prices, reflecting a recovery in tourism and hospitality following pandemic-related disruptions.
- Recreation and Culture: A slight increase of 0.6% was observed in this category, indicating a gradual return to pre-pandemic consumer spending patterns.
Conversely, transportation costs decreased by 0.8%, a softer decline compared to the previous month’s 2.8% drop. Prices remained unchanged for tobacco, housing and utilities, and communications during this period. The stability in housing and utilities prices was particularly significant, as these are major components of household expenses.
Monetary Supply and Banking Indicators
As of September 2024, Oman’s broad money supply expanded by 13.9% year-on-year, reaching OMR 24.7 billion. This growth was driven by an 18.2% increase in narrow money and a 12.3% rise in quasi-money, which includes savings deposits, term deposits in Omani Rials, and foreign currency holdings within the banking sector. Despite the overall monetary expansion, cash held by the public declined by 6.7%, while demand deposits surged by 25.1%, reflecting changing preferences in liquidity management.
Commercial banks in Oman recorded rising interest rates during this period. The weighted average interest rate on Omani Rial-denominated deposits increased from 2.453% in September 2023 to 2.679% in September 2024. Similarly, the weighted average interest rate on loans denominated in Omani Rials rose from 5.451% to 5.604% over the same period. Interbank lending rates for overnight transactions declined slightly, with the average falling to 4.896% in September 2024 compared to 5.388% in the same month the previous year. This shift aligns with the reduction in the weighted average repurchase rate, which decreased from 6.000% to 5.790%, reflecting adjustments in monetary policy in line with the US Federal Reserve’s actions.
Conclusion
Oman’s ability to maintain a low average inflation rate of 1.4% between 2021 and 2024, coupled with steady economic growth, highlights the effectiveness of its fiscal and monetary policies. Strategic public spending, controlled interest rates, and a focus on diversifying the economy have all contributed to this stability. As Oman continues to implement its Vision 2040 development plan, maintaining such macroeconomic stability will be crucial for attracting investment, supporting private sector growth, and ensuring a balanced economic trajectory.
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