MUSCAT: The 2020 budget demonstrates the government’s continued focus on controlling deficit which is expected to reduce by 11 per cent from RO 2.8 billion budgeted in 2019 to RO 2.5 billion in 2020. The deficit, as a percentage of GDP, is expected to decline from 9 per cent in 2019 to 8 per cent in 2020. The government is seeking to achieve this in an era of declining oil revenues by enhancing revenues from gas, taxes and other non-oil revenues. Government spending aims to be kept under control with a budgeted increase of only 2 per cent compared to the 2019 budget, which is also attributable to an increase in interest cost on borrowings.
The importance of achieving a fiscal balance is underlined by the government’s “Tawazun” (or “balance”) initiative, which seeks to enhance revenues, optimise costs and reduce debt. The private sector is expected to play a greater role in development projects and job creation. The new Foreign Capital Investment Law, the Commercial Companies Law, the Bankruptcy Law, the Privatisation Law and the Public Private Partnership Law, all issued in 2019, are expected to assist in achieving targeted rates of foreign and domestic investment.
Contribution from taxes and fees continues to grow rapidly. The government’s focus on privatization is reflected in the planned income from sale of investments in state owned enterprises.
Employment generation continues to be a key objective of the 2020 budget. The National Center for Employment, established in 2019 with a view to employ national manpower, commenced operations on January 1, 2020 and will focus on key job-generating sectors. The National Training Fund, established in 2017 with a view to bridge the skills gap, is expected to train 10,000 Omanis during the next two years. Development spending of RO 5.3 billion is also expected to generate employment opportunities.
Revenue to increase by 6pc
Oil and gas revenues represent 72 per cent of total government revenues.
Oil and gas revenues, as a proportion of total revenues, are slowly declining but remain the major driver of the economy. They are expected to increase by 3 per cent compared to the 2019 budget. Overall, contribution from oil revenues is expected to be on par with last year. The government continues to take a realistic approach by assuming an oil price of $58/bbl in 2020 compared to the average realised price of $65/bbl in 2019. Significantly, gas revenues are budgeted to increase by 11 per cent compared to the 2019 budget.
Non-oil and gas revenues represent 28 per cent of total government revenues
Non-oil and gas revenues are projected to be RO 3 billion, reflecting an increase of 13 per cent compared to 2019 budgeted revenue.
The following provides an analysis of non-oil and gas revenues:
Expenditure to rise by 2pc
Total expenditure is expected to increase by RO 300 million compared to the 2019 budget. The major contributor to increased expenditure is increased interest payments on borrowings. These have increased by RO 230 million compared to the 2019 budget and are now budgeted at RO 860 million. The government continues to focus on welfare expenditure, allocating a significant portion to education, housing, health and social welfare. The allocation has increased by RO 100 million compared to last year.
Development spending is budgeted at RO 5.3 billion for 2020 including RO 2.7 billion budgeted by state-owned enterprises. This is expected to spur economic growth and generate employment opportunities.
Budget deficit to decline by 11pc
The 2020 budget deficit is anticipated to be RO 2.5 billion – RO 300 million less than the 2019 budget, reflecting the Sultanate’s continued focus on tight fiscal management.
The 2020 deficit is expected to be financed from foreign borrowings (60 per cent), local borrowings (20 per cent) and reserves (20 per cent). The debt to GDP ratio is expected to rise but remain below 60 per cent.
GDP to grow by 3pc and inflation to remain low
The GDP is expected to grow at least 2 per cent in 2019, and is targeted to grow by 3 per cent in 2020. The inflation rate stands at 0.2 per cent over the period from January to November 2019 and is projected to remain low during 2020.
(Credit: KPMG Oman)
Oman Observer is now on the WhatsApp channel. Click here
