Oil price slump has put pressure on Oman's economy, says CBO chief

Muscat: A "sharp and sustained" decline in oil prices since mid-2014 has put significant pressure on the economy of Oman, according to Central Bank of Oman Executive President Hamood Sangoor Al-Zadjali.
In his address following publication of the Central Bank’s annual report, Al Zadjali said that despite this, the economy of Oman had “fared fairly well without much damage”.
He said this was made possible because Oman had proactively kept high fiscal buffers, higher capital requirements for banks, low government debt, and flexible wage contracts.
He added: “A turnaround may be achieved by fiscal consolidation combined with relaxing counter-cyclical measures adopted earlier. Nevertheless, the prevalent imbalances in the global economy and diminished fiscal space in oil exporting countries including Oman are a cause of some concern. The developments on both of these fronts are being vigilantly monitored by the Central Bank of Oman and fiscal authorities.
“As a result of twin deficit during 2015 and subsequent rating downgrades, Omanhas introduced fiscal reforms in order to consolidate its fiscal position in the medium term. As Oman follows a fixed exchange rate regime, therefore, maintenance of the peg against USD is a primary policy objective.As of December 2015, only one-third of the CBO’s reserves were sufficient to support the Omani Riyal.
“The banking sector continued its dominationin financial landscape of Oman. Despite challenging economic conditions, the growth momentum in the banking sector continued. The sector remained well capitalized, profitable and fairly liquid. Credit risk is well contained with net NPL ratio of less than 0.5 per cent, while the quantum of market risk remained subdued. The stress testing exercise showed that the banking sector remained resilient to a range of stressed scenarios. The banking sector and the economy can, however, benefit from extending more credit to the SMEs.
“Oman continued on its voyage to upgrade its micro and macro-prudential regulations and supervision. The apex Joint Committee for Financial Stability met twice during 2015 to assess the stability of the macro-financial system. The CBO fine-tuned several regulations considering the changing circumstances. The Basel III implementation is proceeding as planned. The CBO upgraded the suite of its stress testing to incorporate real estate stress testing. The first phase of Recovery and Resolution Planning of the identified Domestic Systemically Important Bank is complete and Early Warning Mechanism for Oman is in advanced stages of development.
“Other than some concerns mentioned above, on balance, it is satisfactory to note that we do not foresee any immediate threat to the financial stability in Oman.”