Thinking on things as I brainstorm potential options:
Most races have been represented fairly well thus far. Dragonborn are uncommon only because their homeland is on the other side of a Pacific sized ocean (though it has many more islands than the central Pacific, so trade is more practical), but they do exist as a small minority. Orcs and half-orcs are quite common, as humans and orcs were two of the initial mortal races of the Tarrakhuna. Elves are less common, as their homeland lies to the south, but not at all unheard of (frex, the late Minister of Public Works was an elf who had served in the royal court of the current, relatively young Sultana's grandmother and her father as well, who had an infamously long reign.) We've seen ogres and minotaurs as merchants and shopkeepers, burrowing owlkin, dwarves (also slightly uncommon as their homeland is the eastern mountains and the steppe further east), tieflings, genasi as well as proper genies, and even the regions (presumed) first aasimar-like race. But no gnomes and no halflings.
On the one hand, I could just call it DM oversight and include some, but I think that's kind of boring. Instead, I'm going to lean into it. Why haven't we seen gnomes yet? They would need to be in some sense "further away" than across the great sea, or have some kind of difficulty with reaching the region or a barrier they cannot normally cross. There must be a reason.
And now it occurs to me: I have avoided putting too much "fae" stuff into my world. Genies fill that role in their own unique way (being more political and slightly less whimsical, but still a bit alien and rather Blue-and-Orange Morality.) Long ago, for Many Plot Reasons, the genie-rajahs abandoned (almost all of) their holdings in the mortal world (called "Al-Duniyyah") and chose to depart for Al-Akirah, the elemental otherworld where their elemental genie powers would be stronger. I have only very lightly touched on the environment of Jinnistan (the country where the genies live in Al-Akirah), as the party has only visited one city there and it was located inside a mountain.
What if gnomes are the original inhabitants of Jinnistan? (Stealing the ideas from
@Charlaquin and
@delericho about them having tufted ears and tails and them being the same race as goblins even if both sides deny it vociferously.) They did not have an institutionalized, magical semi-industrialized society, having lived as a mix of pastoralists and speleoculturists (my semi-invented name for cave farmers!) This creates some tension, but not as much as might otherwise be the case, because the genies mostly don't care about the underground parts of Jinnistan and don't actively police the land between their city-states any more than they previously did in the Tarrakhuna, when humans and orcs (etc.) were nomadic hunter-gatherers/pastoralists too.
This would then make gnomes unpredictable but potentially useful allies should there be any issues with Jinnistani nobles...but at the same time if the party wishes to court any said nobles (and in general they do), this could sour any relations they might later seek with gnomes.
My gnomes will be more elemental than fae. Perhaps I could even merge halflings and kobolds as well to cover the four classical elements: halflings are riverfolk (water), goblins are cave-tenders (earth), gnomes are the surface-walkers (air), and kobolds are deep dwellers whose scaly skin protects them from the heat in their lava-rich homes. I like the symmetry in that.
Most lean in to being inventive creative types, always trying to outdo each other in their competitions. It doesn't really matter if it's illusion magic or mechanical invention, always pushing limits in search of improvements. This is both beneficial because sometimes things really do work, other times they just end up breaking things that worked just fine.
