Uptick in power, fuel subsidy in 2017

Muscat, Aug 12 – Government subsidies, while having plummeted dramatically in the wake of reforms enacted in recent years, perked up slightly in 2017 on the back of an uptick in payouts to, among others, subsidized fuel recipients and the electricity sector. According to the Central Bank of Oman (CBO), government funding support for the electricity sector, for example, jumped 36.3 per cent to RO 380 million in 2017, up from RO 278.8 million a year earlier. Cost Reflective Tariffs (CRT), which eliminate subsidy for large government, commercial and industrial customers, came into force with effect from January 1, 2017. However, the spike in subsidy payouts to the sector last year was attributed to the “growth in consumption and the knock-on effect of an increase in gas prices”, the apex bank stated in its 2017 Annual Report.
Targeted fuel subsidy, an initiative to mitigate the impact of fuel deregulation on Omani motorists and fishermen, grew 22.8 per cent to RO 21 million in 2017, up from RO 17.1 million a year earlier. The fuel subsidy is applicable to all Omani citizens who own a vehicle or a boat and who has a total monthly not exceeding RO 950. An estimated 286,000 Omanis have so far registered under the National Subsidy System. Significantly, fuel subsidies have nosedived from the figures that prevailed before reforms took effect in 2015 soon after the global oil price slump spawned the current economic downturn. From a high of RO 1.134 billion in 2014, fuel subsidies tumbled to RO 437 million in 2015 before falling to a low of RO 21 million last year, according to figures released by the Ministry of Finance.
Subsidy on soft loans for housing and the private sector dipped slightly to RO 25.2 million in 2017, down from RO 25.3 million in 2015. On the other hand, support for essential food commodities totalled RO 3.9 million last year, up from RO 3.8 million a year earlier. This compares with a payout of RO 27.9 million in 2013, before the current economic slump. Under a raft of policy reforms undertaken by the Omani government in the wake of the oil price downturn, fuel prices were deregulated, electricity subsidy for large consumers rolled back, and other grants scaled back.
These subsidies are included in the category for ‘Government Participation and Other Expenses’, which includes government participation in domestic, regional and international interests, operational support to government organisations, and investment expenditures for government companies.
After witnessing a steady decline for the past few years, reflecting the implementation of reforms on subsidies and support for government organisations, the ‘Government Participation & Other Expenses’ category witnessing a 6.7 per cent increase in expenditure to RO 700.3 million in 2017, up from RO 659.7 million in 2016. In contrast, the corresponding figure in 2013 was RO 2.048 billion, well before reforms began to kick in.
“The 2017 budget continued with reforms agenda and emphasised on diversification, removing subsidy distortion, improving the SMEs’ role in the economy, and further rationalizing the expenditure. Consequently, the fiscal consolidation made further progress, which was partly attributed to the recovery in oil prices also,” the Central Bank stated.

Conrad Prabhu