SALEH AL SHAIBANY –
Oman has turned around the economy in 2017 by increasing revenues by 19 per cent in the first four months of this year compared to the same period in 2016.
Total revenues from January to April this year have increased to RO 2.55 billion up from RO 2.141 billion in the first four months of last year. The surge in income is due to higher earnings in oil and gas exports that increased by 42.5 per cent, according to the official statistics.
Corporate tax income has increased by nearly 30 per cent after the government took the initiative of hiking non-oil revenues to diversify the economy. The corporate tax was increased to 15 per cent from 12 per cent this year. It is part of the plan aimed at increasing tax revenue to boost state income and stimulate small businesses.
The new tax regime was hailed by international auditors PWC when the company said in its report, “Even at the increased rate, this still represents one of the lower income tax rates in the world, and we would not see this, on its own, as a significant deterrent to international investment.”
Oman reined on expenditures when the government cut spending by 1.6 per cent from January to April this year. Expenditures in the civil ministries were slashed by 36.8 per cent and the oil production costs by nearly 37 per cent. The new government initiative reflects the current economic reality of lower oil prices. The fiscal expenditure is now designed to have faster turnaround process than in the past.
The good news at the moment is that the private sector will benefit from increased spending this year after a dismissal year in 2016.
Another good news is that the government has stopped relying on its financial reserves. It is taking the remedies from the existing resources without depleting the reserves.
For the private sector, increased spending this year will boost local banks borrowing to resuscitate shelved projects. Banks are now willing to provide the funds as long as the government spending is on the upside. Interest rates at the moment are super low. It means money borrowing is easier and cheaper. This can work well for the government. Easy financing will surely provide the private sector an environment that is conducive to the economy which is much needed in the current scenario.
This is the sign that the government is kicking off a new strategy to reduce the dependence of oil income significantly in a bid to balance its financial books and give the economy a shot in the arm. The government now can go back to implement its economic targets and goals for this five-year plan.
The Five-year Plan ending 2020 has been designed to harness the full resources of the Sultanate, from farming, fishing, mining, manufacturing to tourism starting right away from this year. The Plan will put in motion over 500 policies, including the previous stagnated programmes, to diversify the income. The decision has been based on the experience of the last two years with low oil prices blowing holes in the government’s finances.
As the government is finally set to commit its economic plans, the Sultanate would ease off the crippling investments in oil production. It would have no pressure increasing output and risk rapid depletion of crude oil’s reserves. The current production of 990,000 barrels per day would be adequate for the growth throughout the period of the Five-Year Plan. It would also eliminate a one-dimension economy of injecting billions of rials a year just to increase productions by a few thousand barrels a day.
Before the end of the current Five-Year Plan, Oman will be positioning itself as a leading regional marketing institution in gas distribution. Thanks to Iran’s pact with the Sultanate, the government will have direct access of 30 per cent of the Middle East’s total gas production. The abundance gas availability in the country will fit the glove of investment in the hand of foreign projects to fuel the manufacturing industries in steel, copper, aluminium, power generations and water desalination plants.
But the crown jewel is the abundance of local manpower.
Oman is a very young nation with over 60 per cent of the population under the age of 30. The youthful workforce will expand the investment horizons and respond to the evolving needs as demanded by foreign companies. It will address the employment’s prospects of graduates who currently heavily depend on public jobs. The new economic regime will be in a better position to comfortably create jobs in the spinoff of the RO 66 billion expenditure planned in the next five years.