2 pc GDP growth is achievable for Oman: KPMG

By Conrad Prabhu — MUSCAT: Jan 7: A modest two per cent growth in the Gross Domestic Product (GDP) in 2017, as projected in Oman’s State Budget for the year, is attainable provided the government makes headway on privatisation reform, as well as in the implementation of its Tanfeedh-led non-oil economic diversification strategy, according to leading audit, tax and advisory services firm KPMG.
The Budget Statement presented by authorities last week envisions GDP growth at two per cent this year, aided in part by expectations of an uptick in oil prices. Non-oil activities, on the other hand, are projected to rise by 4.7 per cent.
“The fact that within a year of (the 9th Five-Year Plan) being issued, the government has revised its revenue and expenditure estimates downwards, basing its budget on a lower oil price of $45/bbl, suggests prudent fiscal management. GDP growth of 2 per cent is achievable despite strong economic headwinds and shrinking government expenditure if the government expeditiously implements its Tanfeedh and privatisation programmes,” said KPMG in its assessment of the 2017 Budget.
The advisory firm describes the 2017 Budget as “a realistic budget amid challenging conditions”.  The 2017 budget, it explains, comes against a backdrop of continued subdued oil prices and focuses on revitalizing non-oil revenues and rationalizing public spending.
“The budget has maintained development spending levels while limiting public spending in other areas including recruitment in the public sector and postponing the purchase and replacement of government vehicles and equipment,” it said.
Significantly, plans announced by the government to sell state assets through a privatisation scheme which will be formalised by enacting a public-private partnership (PPP) law, says KPMG.
The government believes privatisation will drive economic growth, the firm said.
A holding company has been set up for each sector, and government shares transferred to the relevant holding company. Some government companies have been transferred to sovereign funds, in preparation for privatisation. The necessary financial and legal advisory studies to privatise the Muscat Electricity Distribution Company (MEDC) have been completed. These developments suggest that the government is looking to maintain good levels of private investment to spur economic growth, KPMG stated.
However, to achieve its growth objectives, the government will have to accelerate the privatisation process during 2017 by transferring its interests in government assets to the private sector, the advisory firm stressed.
In its analysis, KPMG also underlined the importance of the Tanfeedh programme to achieving economic goals set out in the Budget.  Unveiled last year to improve the investment climate in the Sultanate, as well as to attract domestic and foreign investment, the programme has identified 121 initiatives for implementation from this year.
“Outcomes should boost GDP by more than RO 1.7 billion and create an additional 30,000 jobs for Omani nationals,” the firm stated.
Commenting on amendments to tax laws, the report said: “Although tax legislation is likely to change during 2017, the 2017 budget does not anticipate any changes in government revenues.
The rate of corporate income tax is likely to rise from 12 per cent to 15 per cent, the tax free limit of RO 30,000 is likely to be removed, the scope of tax exemptions is likely to be reduced and the scope of withholding taxes is likely to be widened.”
As for Value Added Tax (VAT), which is proposed to be introduced across the Gulf, KPMG said the GCC VAT agreement is expected to be released soon, paving the way for member states to legislate laws at the national level.