Trump tariffs could hit foreign investment, Oman warns

• Boost from non-oil economy
• 3.1% GDP growth predicted
• US interest rates a threat

Oman’s buoyant non-oil sector will help the sultanate’s economy expand this year at nearly twice the rate of 2024, its sovereign wealth fund has forecast.

However, the fund warned that US president-elect Donald Trump’s plans to implement tariffs on its trading partners could hamper ambitions by the sultanate to increase foreign direct investment and reduce its debt burden.

The Oman Investment Authority (OIA) predicted that the country’s real GDP will grow by 3.1 percent in 2025, up from an estimated 1.7 percent rise last year and a 1.3 percent expansion in 2023.

In its latest quarterly bulletin, the OIA said real GDP growth this year would be “supported by the non-petroleum sector” and by the central bank’s likely lowering of interest rates. Oman follows changes in US interest rates because of the rial’s dollar peg.

The Federal Reserve reduced its benchmark rate in December by 25 basis points to a target range of 4.25 to 4.50 percent, although it also forecast making only two cuts in 2025, because of inflation worries. Last September, the Fed said it foresaw making four rate reductions in 2025.

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Nevertheless, the OIA predicted that along with benign inflation levels – annual inflation was 0.5 percent in November – lower interest rates will “stimulate investments, bolster private consumption, and attract higher FDI inflows”.

However, it warned that additional US tariffs under Trump could lead the Fed to maintain interest rates “at elevated levels”. Oman’s central bank would do likewise, which would dampen domestic borrowing demand, reduce investments and raise government debt servicing costs.

Other negative risks to the OIA’s economic forecast, it said, included potential declines in oil prices because of weaker global demand, particularly from China.

The OIA’s predictions are more optimistic than figures published this week by the government itself.

The Oman Observer newspaper reported that the Gulf state’s GDP is projected to grow to OR39.43 billion ($102.42 billion) in 2025, up from the anticipated OR38.39 billion in 2024, citing a finance ministry’s budget 2025 presentation. This represents an overall increase of around 2.7 percent.

Oman’s trade surplus widened in 2024, according to local media. Fitch Ratings forecast in December that the country’s budget surplus would shrink to 0.7 percent of GDP in 2025 from 2 percent in 2024, and estimated Oman’s breakeven oil price at $67 to $70 a barrel this year.  Brent crude was trading at around $77 on Wednesday.

Omani oil output will increase in 2025 as the Opec+ group of oil exporters eases production cuts. This will mitigate part of the revenue loss arising from lower crude prices, Fitch wrote. However, Oman’s hydrocarbon revenue will nonetheless fall by 10 percent year on year in 2025, the ratings agency forecast.

Oman public debt fell to 35 percent of GDP in the first quarter of 2024, from a peak of 68 percent in 2020, the bulletin said.