Oman’s Medium-Term Fiscal Plan 2020-2024 explained
Published: 07:11 PM,Nov 02,2020 | EDITED : 06:04 AM,Apr 28,2024
The last half-century has seen a period of unprecedented economic and social development across all sectors in the Sultanate. Yet the sharp fall of oil prices since 2014 has been a burden on government finances, directly increasing the gap between government revenues and expenditures. The government has undertaken various measures to address this challenge through increasing non-oil revenues and reducing government expenditures, and avoided any measures with social impacts. Yet the prolonged fall of oil prices weakened the government’s ability to continue funding its operations, especially given the inflexible nature of the remaining expenditures, leading to large annual deficits.
To fund these deficits, the government heavily relied on borrowing, particularly from international markets, in addition to reducing its reserves. This has significantly increased debt levels and debt servicing costs to unsustainable ones. Moreover, the dual shock of the COVID-19 pandemic and oil market disruptions have placed an urgent spotlight on the country’s fiscal situation. This has facilitated an increased perception of credit risk and hence consecutive reductions in Oman’s sovereign credit ratings from international credit rating agencies to reach almost junk levels. The reductions in ratings are expected to continue in case no additional fiscal consolidation measures are taken, which will make borrowing become more difficult and costlier.
In light of these fiscal challenges, and given the uncertainty in the future of oil prices, a Medium- Term Fiscal Plan (MTFP) for the years 2020-2024 was developed with an overarching objective of achieving fiscal balance in the medium-term.
The implementation of this plan will be alongside the implementation of several economic programmes and measures aiming to improve the business environment and stimulate investments, in addition to the launch of a social safety net that will reduce the impacts of the fiscal measures on selected groups of society.
- Economic and Fiscal Performance 1.1 Economic and Fiscal Performance up to 2019