Oman’s economy is extremely vulnerable to terms-of-trade shocks because of its heavy reliance on oil export proceeds, which account for more than 90 percent of exports. Over the past 20 years the price of oil has fluctuated considerably, and with it Oman’s current account balance. The price of oil surged in the mid- and late 1970s, collapsed in the mid-1980s, and recovered somewhat in the 1990s. In the past, Oman was able to respond to these shocks by incurring large budget deficits, financed primarily by drawing down previously accumulated foreign exchange reserves and by resorting to external borrowing. Given the reduced availability of official external reserves and of the country’s oil resources, however, the scope for similar policy response in the future is limited.

Policies Toward Sustainable Growth