OMAN’S ECONOMIC UPDATE
Excerpt from The World Bank (October 2020)
Similar to most economies all over the world, “the economy of Oman contracted sharply in 2020 amid the weakness of oil prices and the disruptions from COVID-19. Fiscal and external deficits will remain under immense strain due to prolonged low oil and gas prices, elevating public and external debt. Key risks to the outlook are prolonged low oil prices, which will induce high external borrowing needs, and lack of impetus for private sector job creation that does not depend on government spending.
The drop in oil prices and COVID-19 are placing unprecedented strain on Oman’s economy. While no official data are available yet on the economy in 2020, preliminary data issued by the authorities indicate that Oman’s nominal
The economy is projected to sharply contract by over 9% in 2020, owing to depressed global demand for oil and the pandemic hit to the non-oil sector. The new OPEC+ oil cut agreement is putting significant pressure on the hydrocarbon sector, which is expected to contract by over 12% this year. The non-oil economy also faces significant pressure amid ongoing restrictions, with tourism and hotel sectors are among the hardest hit. If conditions ease, growth in Oman is projected to gradually pick up to an average of 4% in 2021-22, but very back-loaded to 2022, partly due to a spike from the second phase of the Khazzan field. Gas field development has been critical to meet growing domestic and global demand, but it is not on a scale that is transformative in its own right. Inflation will likely pick up to around 3% in 2021, reflecting the recovery of domestic demand and the introduction of VAT”.
TASK:
Based on the background case above, answer the question below.
What appropriate monetary and fiscal policies can you recommend to improve Oman’s current economic situation? Justify your answer.
You may add research to your answers to substantiate your report.
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