Oman's Foreign Reserves Slip to $18.9B as Credit Growth Accelerates

Oman's foreign reserves slid to $18.9 billion in July. The stock equals OMR 7.29 billion and marks a 2.5% monthly decline from June, when the central bank counted $19.5 billion, or OMR 7.5 billion. The figures come from the Central Bank of Oman's latest monthly statistical bulletin. Reserves move this way from time to time; the larger picture in the same bulletin is one of rapid monetary growth.

Consider credit. Other depository corporations in Oman held loans of $99.7 billion at the latest count, up 12.2% from the previous year. In rials, that is OMR 38.3 billion. Private-sector lending increased 11.5% to $80.9 billion, or OMR 31.1 billion. Deposit growth eclipsed loan growth. Total deposits at these institutions reached $97.1 billion, up 13.2%, and private-sector deposits stood at $64.3 billion, up 12.7%. Those are meaningful rates for a small oil-exporting economy.

Money supply data reinforce the impression of a domestic economy flushing with liquidity. Broad money, M2, grew 15% over the year to $76.3 billion. Narrow money, M1, rose much faster, up 28% — a sign that cash and checking balances are building up. Quasi-money, the less liquid part of the broad aggregate, increased 9.9%. That type of composition is typical when transactions are picking up, not when deposits are being locked away.

Oil numbers run in the same direction. By the end of July, the average price of Omani oil had reached $83.90 per barrel, a 15.7% increase over a year. Oman's average daily output was 1.1028 million barrels, up 11.3%. Higher production and higher prices usually work together to support income. Inflation, though, is tame: the consumer price index rose 2.9% in July from a year earlier.

The national accounts from March complicate that story. NCSI data cited by the CBO show nominal GDP down 2% year on year at the end of the first quarter. Petroleum sector nominal output fell 11.7%. Non-hydrocarbon nominal output rose 5.9%. Once price effects are stripped out, real GDP was up 2.6%, with real hydrocarbon GDP growing 4.6% and non-hydrocarbon real GDP growing 2.4%. The striking point is not the real output number. It is that the same economy, measured at current market prices, is getting smaller even as its volume of activity expands.

That combination explains why Oman watches both reserve levels and its geography. The sultanate's principal ports — Sohar, Salalah and Duqm — are all on the Gulf of Oman or the Arabian Sea, outside the Strait of Hormuz. That allows Omani ports to operate and transship cargo even if the strait becomes harder to pass. Oman has built a role as a trade and logistics hub on that foundation, and the same neutrality lets it mediate disputes rather than take sides in regional conflicts.

Had July's reserve fall arrived with weak credit and shrinking output, it would look alarming. It arrived instead alongside strong domestic financial expansion, and after a quarter in which real growth stayed positive. The more reliable reading is that oil income and nominal output have been slow to recover; the reserve dip may be the counterpart of that. The CBO's subsequent bulletins will show whether the drawdown was a one-month event or the start of a longer adjustment.