Muscat – Oman’s fixed exchange rate regime tied to the US dollar serves the country’s economy well and remains a suitable political anchor for the sultanate, the International Monetary Fund (IMF) said.
“The currency’s peg to the US dollar continues to serve Oman well, given the oil-dependent structure of the economy. IMF executive directors agreed that the exchange rate anchor remains an appropriate political anchor for Oman, contributing to low and stable inflation, ”the IMF said in its report on consultations under the IMF. article IV.
The International Monetary Fund noted that a more flexible exchange rate could support the development of Oman’s non-market hydrocarbon sectors over time.
However, moving away from the dollar peg would have limited short-term competitiveness benefits and remove an effective nominal peg, the fund added.
“The Omani authorities have expressed an open attitude towards a shift to a more flexible long-term exchange rate regime as the importance of the non-hydrocarbon trade sector increases. The medium-term fiscal plan and structural reforms are essential to support the anchoring, ”the IMF said.
The IMF estimated that the sultanate’s external position in 2020 was significantly weaker than the level implied by the fundamentals and desirable policies.
“The medium-term fiscal plan and structural reforms are therefore essential to support the currency peg. The launch of the Monetary Policy Improvement Project would enhance the effectiveness of monetary policy, ”the fund said.
Since the last parity change in 1986, Oman’s fixed exchange rate has remained unchanged at US $ 2,6008 per riyal, according to information published on the website of the Central Bank of Oman.
The fixed parity and the associated stability of the exchange rate have significantly contributed to the favorable atmosphere for the promotion of trade, investment and growth in Oman. The monetary discipline embodied by the peg also created orderly monetary conditions in the system, according to the central bank.
According to IMF estimates, Oman’s real GDP – which contracted 2.8% in 2020 – is expected to grow 2.5% this year and 2.9% in 2022.
The sultanate’s budget deficit and public debt increased sharply in 2020 but is expected to improve significantly in the medium term with the implementation of the sultanate’s medium-term fiscal balance plan, the IMF said.
According to the fund’s estimates, the Sultanate’s budget deficit widened to 19.3% of GDP in 2020, but is expected to decline to -2.4% in 2021 and a surplus in 2022.