2009 Index of Economic Freedom

Quick Facts

Population:

• 2.5 million

GDP (PPP):

• $56.4 billion
• 6.8% growth
• 4.5% 5-year compound annual growth
• $22152 per capita

Unemployment:

• 15.0%

Inflation (CPI):

• 5.5%

FDI Inflow:

• $951.9 million

Oman's economic freedom score is 67, making its economy the 43rd freest in the 2009 Index. Its score decreased 0.3 point from last year, reflecting a decline in freedom from corruption that offset an improvement in business freedom. Oman is ranked 3rd out of 17 countries in the Middle East/North Africa region, and its overall score is above the world and regional averages.

Though Oman is a relatively small oil producer by regional standards, oil revenue has driven the economy as the most important source of export earnings and government revenue. The government has pursued reforms to diversify the economy and stimulate broad-based economic development, but progress has been mixed.

Oman scores above the world average in seven of the 10 economic freedoms. The tariff rate is low, but non-tariff barriers persist. There is no personal income tax, and corporate taxes are low. Foreign investment is welcome in many sectors, although the approval process can be burdensome. The state's involvement in the economy through public enterprises remains considerable. High government spending is funded by a large state-owned energy sector. The threat of expropriation is low, but the judiciary is vulnerable to political influence.

Background Back to the top

Oman, an Arab monarchy, has been trying to modernize its oil-dominated economy without diluting the ruling al-Said family’s power. It is a relatively small oil producer, and production has declined steadily since 2001, although this decline has been offset by rising oil prices. To promote economic diversification, the government seeks to expand exports of natural gas, to develop gas-based industries, and to encourage foreign investment in the petrochemical, electric power, telecommunications, and other industries. It also places a high priority on “Omanization” (the replacement of foreign workers with local staff) to reduce chronically high unemployment rates. Oman joined the World Trade Organization in 2000 and signed a free trade agreement with the United States in 2006

Business Freedom 63.3 Back to the top

The overall freedom to conduct a business is limited by Oman's regulatory environment. Starting a business takes an average of 14 days, compared to the world average of 38 days. However, obtaining a business license takes more than the world average of 225 days, and costs are high. Bankruptcy proceedings are lengthy.

Trade Freedom 83.6 Back to the top

Oman's weighted average tariff rate was 3.2 percent in 2005. Some prohibitive tariffs, import bans and restrictions, burdensome licensing requirements, protectionist government procurement policies, and subsidies add to the cost of trade. Ten points were deducted from Oman's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 98.5 Back to the top

Oman has low tax rates. There is no income tax on individuals, and the top corporate tax rate for most enterprises is 12 percent; companies with more than 70 percent foreign participation are subject to a top corporate tax rate of 30 percent. Oil sales are subject to a special tax scheme. There is no consumption tax or value-added tax (VAT). In the most recent year, overall tax revenue as a percentage of GDP was 2.0 percent.

Government Size 61.1 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 36.0 percent of GDP. Privatization of the national telecommunications company began in 2008, and water and electricity are next in line. Oman is trying to diversify its economy, which relies primarily on the hydrocarbon sector for revenues.

Monetary Freedom71.4 Back to the top

Inflation is relatively low, averaging 4.6 percent between 2005 and 2007. The government controls the prices of a range of core goods and services through an extensive subsidy system and influences prices through state-owned enterprises and utilities, including electricity and water. Fifteen points were deducted from Oman's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom60.0 Back to the top

Foreign investment is allowed in many sectors, subject to government approval. The level of foreign ownership that is permitted varies with the level of capital committed. The “Omanization” requirement that only Omanis may work in specified occupational categories is an impediment to foreign investment. Residents and non-residents may hold foreign exchange accounts. There are no restrictions on capital repatriation, currency exchange, or transfer of dividends. Land ownership for foreigners is generally prohibited in Oman, except in designated tourist areas and in industrial estates.

Financial Freedom60.0 Back to the top

Oman's financial sector, which is regulated by the Central Bank of Oman, has adopted new bank supervision procedures in recent years. A 2000 banking law limited investments in foreign securities, raised capital requirements, and granted the central bank the authority to reject candidates for senior positions in commercial banks. Since then, several banks have merged. There are six domestic banks and nine foreign bank branches, as well as three specialized banks that provide housing and industrial loans to Omani citizens at favorable terms. Most credit is offered at market rates, but the government intervenes in credit markets through subsidized loans to promote investment. The Muscat Securities Market is very active and, unlike many other equity markets in the region, is open to foreign investors.

Property Rights50.0 Back to the top

The threat of expropriation is low, although the judiciary is subject to political influence. Foreigners may hold title to homes inside specified tourism projects. Intellectual property laws on patents, copyrights, trademarks, industrial secrets, geographical indications, and integrated circuits are WTO-consistent, and enforcement has improved. Only the sultan, through royal decree, can amend the laws.

Freedom From Corruption47.0 Back to the top

Corruption is perceived as present. Oman ranks 53rd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Although corruption is not considered a significant problem, several high-ranking government officials, including a member of the State Council, have been sentenced to between three and five years in prison for bribery, misuse of public office, and breach of trust in recent years.

Labor Freedom75.0 Back to the top

Oman’s relatively flexible labor regulations enhance employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is not difficult. The labor laws enforce the “Omanization” policy that requires private-sector firms to meet quotas for hiring native Omani workers