2019 Budget: $58/bbl oil price signals confidence

Conrad Prabhu -
MUSCAT, JAN 1 -
The Omani government’s decision to base the 2019 State Budget on the relatively strong average oil price assumption of $58 per barrel has been broadly hailed by a diverse spectrum of business figures in the local community.
An expatriate consultant at a leading tax advisory services firm applauded the choice of $58/bbl as a “bold decision” that attests to the government’s confidence in the underlying strength of Omani economy.
“Considering that the 2019 budget is based on an estimated oil price of $58/bbl, which represents a 16 per cent increase over the corresponding budgeted oil price of $50/bbl in 2018, signals to me a conviction that the economy is resilient enough to withstand any dramatic volatility in oil prices, or other short-term turbulence in the global economy,” he said. “Equally, it’s a demonstration of comfort that its funding needs will be sourced, if necessary, from overseas lenders or debt markets without much difficulty.”
The 2019 State Budget was promulgated by Royal Decree 1/2019 yesterday projecting a total public expenditure of RO 12.9 billion, up from a budgeted expenditure of RO 12.5 billion in 2018.
The RO 400 million uptick in expenditure in the latest budget is seen as evidence of the government’s commitment to keeping the economy chugging, while bolstering fiscal outlays towards health, education and social services.
As has been widely anticipated, the deficit is estimated at RO 2.8 billion, which is lower by RO 200 million compared to the 2018 Budget. “It is expected that the actual deficit for 2018 will be lower than the budgeted deficit of RO 3 billion, mainly due to an increase in the realised oil price,” a finance executive said.
Although the price of Omani crude currently hovers at around $53/bbl, the realised price for the January- November 2018 period averages about $68/bbl.
“As announced earlier yesterday, the Government is planning to finance 86 per cent of the budget deficit through external and domestic borrowings. This will add to the growing Debt to GDP ratio which is expected to be around 50 per cent.
This outcome, along with the continued volatility in oil prices, makes it imperative for the government to accelerate its diversification away from oil revenues,” he stated.