Muscat received a strong vote of confidence from the International Monetary Fund after its 2026 staff visit found that the sultanate’s economy has remained resilient despite regional conflict, higher import costs and continuing volatility in global energy markets.A mission led by Abdullah AlHassan visited Muscat from June 7 to 15 to review economic and financial developments, policy priorities and the outlook. The assessment gives Oman an endorsement as the government presses ahead with Oman Vision 2040, a diversification programme aimed at reducing dependence on hydrocarbons while protecting fiscal stability.
The IMF said growth momentum had strengthened, with real gross domestic product expanding 2.4 per cent in 2025, compared with 1.6 per cent in 2024. It expects growth to rise to about 3.7 per cent in 2026, helped by increased oil production and steady non-oil activity, before easing to 3 per cent in 2027.
The Fund’s staff said the impact of the Middle East war had so far been contained, mainly showing up in inflationary pressures and some weakness in non-hydrocarbon sectors. Oman’s oil and natural gas infrastructure has remained largely unaffected, enabling higher production and exports while regional supply routes face tighter scrutiny.
Non-hydrocarbon growth is expected to slow to 2.5 per cent this year as tourism and construction absorb some effects of the conflict, but the IMF expects a recovery to 3.2 per cent in 2027. The pattern reflects a central challenge: diversification is advancing, yet several non-oil activities remain linked to government spending, logistics flows and energy cycles.
Inflation remains manageable but has picked up. Average inflation was 1 per cent in 2025, before rising to 2.8 per cent year on year during January-May 2026, driven mainly by food and transport costs. The increase underlines the sensitivity of a small open economy to freight, fuel and food-price shocks.
Fiscal indicators have strengthened after years of consolidation. The fiscal surplus narrowed to 0.6 per cent of GDP in 2025 because of lower oil prices and higher capital spending, but is projected to widen to 4.5 per cent in 2026 and 4.2 per cent in 2027. Central government debt fell to 34.7 per cent of GDP at the end of 2025.
The current account posted a deficit of 1.9 per cent of GDP in 2025, but is forecast to swing to a surplus of about 3 per cent of GDP in both 2026 and 2027, supported by stronger hydrocarbon receipts and growth in non-oil exports.
Banking-sector buffers remain an important stabiliser. Lenders are well capitalised and liquid, with strong asset quality and profitability, giving the financial system scope to support credit without adding undue risk. Prudential oversight by the Central Bank of Oman has helped preserve confidence.
The endorsement does not remove the pressure on Muscat to deepen reform. The IMF identified improved tax administration, stronger medium-term fiscal frameworks, active liquidity management, deeper capital markets, greater transparency at state-owned enterprises, higher female labour-force participation and renewable-energy investment as key priorities.
Oman has moved ahead on fiscal reform in ways that distinguish it within the Gulf. A personal income tax law issued by royal decree is set to apply from January 2028 to individuals earning more than OMR42,000 annually, at a 5 per cent rate. The measure targets higher earners and is designed to broaden state revenue without affecting most households.
The 2026 state budget shows the limits of diversification. Total revenue is budgeted at about OMR11.45 billion, with oil and gas receipts still making up roughly two-thirds of government income. Non-oil and gas revenue accounts for about one-third, reflecting progress since the fiscal stress of the past decade.
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