Oman must diversify exports to shore up economy, IMF says

• Still ‘highly sensitive’ to oil price
• Tax income meant to fund infrastructure
• Export-orientated business lags behind

Oman is planning to use higher tax revenues to fund infrastructure projects, but the International Monetary Fund has warned that its finances remain “vulnerable” to oil price fluctuations.

IMF analysts have urged Oman to use its improved fiscal position to push harder on export-orientated industries, warning that manufacturing remains dominated by oil-linked businesses with limited progress on diversification.

The Omani government collected nearly OR1.4 billion ($3.6 billion) in taxes last year, including VAT, excise duties and corporate tax, Oman Television reported. 

Corporate tax revenue rose 8 percent year on year to OR658 million, while VAT receipts were up 4 percent to OR631 million. Excise tax brought in OR84 million, a rise of 3 percent.

• Oman non-oil and gas exports hit record $18bn in 2025
• Oman 2025 budget deficit below forecast as revenue rises
• IMF praises Oman’s fiscal management and resilient economy

Sultan Al Habsi, the country’s minister of finance, told Oman Television that 2025 tax income would “pay for infrastructure projects in 2026 such as roads, electricity, water and sewage”.

In 2028 Oman will introduce personal income tax at a flat rate of 5 percent on annual income above OR42,000. This covers salaries, business income, rental earnings and capital gains from shares, sukuk and bonds. It will be the first GCC member to tax individual incomes.

An IMF paper published last week said Oman had also made strides in recent decades to streamline regulations, improve infrastructure and ensure sound governance. 

Yet the country’s economic structure and growth remain “vulnerable” and “highly sensitive” to shifts in the oil price.

This is because diversification efforts have progressed in domestic-focused industries far more than in export-oriented ones, according to Mohamed Belkhir, a senior economist in the IMF’s Middle East and Central Asia department, and his co-authors Takako Iwaki and Nareg Mesrobian.

Oman has increased non-hydrocarbon activities from approximately 55 percent of GDP in 2005 to almost 70 percent in 2024, according to the IMF paper. However, energy industry income still makes up about 80 percent of fiscal revenues.

Belkhir and his co-authors also pointed out that output unrelated to oil and gas was concentrated in “non-tradable” sectors such as construction, public administration, education and healthcare. These make up 40 percent of non-hydrocarbon GDP.

Manufacturing, which the paper described as “a key tradable and high-productivity sector”, accounts for only 8 percent. 

The manufacturing sector itself is dominated by oil-related industries, with refined petroleum, chemicals and metals making up 60 percent of manufacturing activities.

“More complex, higher-added-value products – such as machinery and equipment – remain minimal,” wrote Belkhir and his co-authors.

The IMF team pointed to Singapore as a benchmark for effective diversification: construction and public services make up 13 percent of its GDP while manufacturing is 21 percent. 

“Oman’s manufacturing share has remained broadly unchanged over the past two decades, whereas construction has nearly doubled, accompanied by a decline of almost 50 percent in wholesale and retail trade,” they wrote. 

“This pattern reflects a reallocation of resources – labour and capital – within non-tradable, often lower-productivity, sectors rather than a structural shift toward tradable, higher-productivity activities that are critical for export diversification and long-term economic resilience.”