3 per cent uptick in government subsidy in 2019 State Budget

Conrad Prabhu –
Muscat, JAN 2 –
Subsidy allocations have risen a modest, if significant, 2.75 per cent to climb to RO 745 million (nearly $2 billion) in the 2019 State Budget, underscoring the continued importance of a ‘social net’ to help cushion the impact of the fiscal downturn on economically weaker sections of the general population. Nevertheless, the government has pledged measures to put in place measures designed to channel subsidy to only needy and deserving Omani nationals.
According the Finance Ministry’s statement on the 2019 State Budget, unveiled on Tuesday, appropriations allocated for subsidies have jumped by around RO 20 million to reach an estimated RO 745 million in 2019, versus comparative figures for 2018.
“This is due to the increase in electricity subsidy to meet the growth in consumption. This includes subsidies for oil products, housing and development loans, and operational support to state-owned enterprises (SOEs),” the ministry stated.
While a breakdown in the subsidy allocations is still awaited, the Authority for Electricity Regulation Oman (AER) had recently revealed that government subsidy to the sector was projected to climb to around RO 625 million in 2019, up from an estimated RO 580 million in 2018 — an increase it had dubbed as “unsustainable”.
The upsurge comes despite the implementation of subsidy-free Cost Reflective Tariffs (CRT) for large industrial, commercial and government consumers early last year — a move that has nonetheless spurred dramatic reductions in energy use by many among the targeted segment. Absent CRT, subsidy for the sector would have actually soared to around RO 700 million in 2019, the regulator warned.
Rising population growth continues to drive up electricity demand especially in the subsidised residential sector — a trend the Authority hopes to cap and reverse through an intensive campaign in support of energy efficiency and conservation.
While the electricity sector accounts for the lion’s share of the subsidy allocation for the year, the National Subsidy Scheme set up by the government is an important beneficiary as well. “As part of government’s endeavours to mitigate the implications arising from the elimination of fuel subsidy, the National Subsidy System (NSS) has been provided with the required allocations. The number of citizens registered in this system reached around 325,000,” the Finance Ministry said in its Budget Statement.
Targeted fuel subsidy grew 22.8 per cent to RO 21 million in 2017, up from RO 17.1 million a year earlier, according to the Central Bank of Oman (CBO). 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. Beneficiaries have burgeoned from 286,000 Omanis at the end of 2017 to an estimated 325,000 today.
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 ongoing 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 the CBO.
Given the budgetary constraints and commitments to boost efficiency and curb waste, the government has pledged step to continue “reviewing and rationalising government subsidy in order to direct such subsidy to needy/eligible citizens”.