Economic diversification key response to downturn

Funding shortfall: Oman registered a budget deficit of RO 4,427.2m during January-September 2016, according to CBO

Business Reporter –
Muscat, April 14 –

The substantial reduction in government revenues and widening of fiscal deficits has necessitated the adoption of a path of fiscal consolidation in the medium term, the Central Bank of Oman (CBO) has stressed.
Ongoing efforts to pursue economic diversification are becoming more critical in the lower oil price environment. In this context it has become imperative to focus on preserving fiscal space for growth-enhancing spending while maintaining fiscal sustainability, it stated in its mid-year review of Omani macroeconomic developments.
The review indicates that with oil prices continuing to remain relatively low in 2016, economic activity in the Sultanate is projected to be subdued despite sustained expansion in hydrocarbon output. Preliminary national accounts data for the Sultanate of Oman pointed to a 9.0 per cent drop in nominal Gross Domestic Product (GDP) contracting to RO 17.9 billion over the period January-September 2016 as compared to a more pronounced decrease of 16.0 per cent over the same period in 2015.
The Sultanate’s annual State General Budget for the year 2017 has been formulated as a policy response to attain expenditure restraint, broadening of non-oil revenue and greater economic diversification. The 2017 budget reflects fiscal prudence induced by economic downturn and the projections based on a conservative assumption of oil at $ 45 per barrel and reliance upon external borrowings to finance the deficit are noteworthy features, it said.
Due to weaknesses in average oil prices in the first nine months of 2016, Oman experienced a larger revenue gap in January-September 2016. The sharp drop in fiscal revenue, outstripping the modest reduction in fiscal expenditure led to widening of fiscal deficit under the period under review. Oman registered a budget deficit of RO 4,427.2 million during January-September 2016 compared to a deficit RO 2,934.3 million over the same period a year ago.
During the first nine months of 2016, government revenues decreased by 25.8 per cent to RO 4,977.5 million, while government expenditure declined by 2.5 per cent to RO 9,404.7 million. The aggregate government debt of the Sultanate expanded to RO 6,681 million as at the end of September 2016 from RO 3,444 million at the end of December 2015.
The GDP component emanating from the petroleum sector registered a decline of 29.4 per cent while the non-petroleum sector GDP decreased by 0.2 per cent. Omani crude oil average price declined to $38.3 per barrel during the period January -September 2016 from $59.8 over the same period a year ago. The daily average production increased by 2.6 per cent to 1003.2 thousand barrels with the cumulative oil production during January-September 2016, reaching 274.9 million barrels as against 267.1 million barrels over the same period in 2015.
The crude petroleum activities continued to remain the major contributor to the overall hydrocarbon sector with 23.1 per cent of value addition to the nominal GDP compared to a modest 5.2 per cent value addition from the natural gas sector, said the CBO in its review.
Merchandise exports of the Sultanate declined sharply by 27.1 per cent to RO 7,731 million in January-September 2016 while the value of merchandise imports (on cif basis) dropped by 21.4 per cent to RO 6,563 million. Consequently, merchandise trade balance registered a smaller surplus of RO 1,168 million in January- September 2016 — a decrease of 48.1 per cent over the same period a year ago. The recent trend in merchandise trade indicates that current account deficit in 2016 would widen further.