Despite a revenue fall in the first five months of 2021, the relatively buoyant crude oil prices bode well for the Sultanate to realise its budget estimates.
Omani crude is currently trading at prices that prevailed before the outbreak of coronavirus pandemic. On the Dubai Mercantile Exchange, Oman crude for delivery in September 2021 reached post-Covid peak of $73.09 per barrel on Friday,
At the same time, the average price of Oman oil for July Delivery 2021 has stabilized at $66.40 per barrel, registering $3.30 per barrel higher than June delivery 2021 and higher than the budgeted price.
Oman’s budget is based on the assumption that oil will be at $45 a barrel (RO17.5) in 2021. This is a marginal rise of two per cent over last year’s level.
According to experts, Oman’s fiscal outlook will be significant should oil prices remain above the $70 per barrel mark.
“The current oil price above $70 is providing a much needed breather from a fiscal balance perspective. The surplus generated as a result of higher oil price throughout the rest of 2021 will significantly contribute towards lowering the annual deficit and perhaps bring us closer to breakeven much faster than anticipated in the Medium Term Fiscal Plan”, said Alkesh Joshi, Tax Partner and MENA Energy Tax Lear for Earnest and Young.
As per 2021 Fiscal Budget, 63 per cent as expected in the budget would yield an additional RO 1 billion to the exchequer.
“This would reduce the originally planned deficit of RO 2.24 billion by almost 50 per cent. Therefore oil pricing staying above $70 for the rest of the year will be extremely positive for the economy and the economic climate in the near future”, Alkesh added.
According to International Monetary Fund observations, Oman economy is expected to gradually recover from the pandemic and strengthen over the medium term.
“Benefiting from the projected modest increase of hydrocarbon production, overall GDP is projected to grow around 2.5 per cent in 2021 with about 3 per cent average growth over the medium term. Non-hydrocarbon GDP growth of 1.5 per cent is projected for 2021”, commented a report by the staff of the global agency after its recent visit to the Sultanate.
The IMF mission also pointed out that with oil prices currently higher than budgeted, “there is scope for additional temporary targeted support for affected households and businesses if needed without jeopardizing medium-term consolidation objectives”.
In an interview, Energy and Minerals Minister Mohammed al Rumhy had earlier in an interview said that oil prices of around $75 per barrel are "fair" and reflect the improvement in the global economy from last year's Covid-19 slump.
"I think from my point of view the market is fair," al Rumhy told Energy Intelligence.
A statement from the Ministry of Finance in the beginning of this month showed that the year-to-date budget deficit of RO 890.2 million in May.
According to the rating agency Fitch, the budget deficit is projected to further moderate to 5 per cent of GDP in 2022 “as higher oil production offsets a renewed fall in oil prices and reforms bring additional revenue
Revenues collected till the end of May 2021 amounted to about RO 3.5 billion, registering a decrease of 18.86 per cent compared to the same period in 2020 due to the decline in average oil prices and production, which led to a decrease in oil revenues by 23.06 per cent and gas revenues by 7.08 per cent.
At the same time, public spending from January to the end of May 2021 amounted to about RO 4.4 billion, recording a decrease of 2.92 per cent compared to the same period in 2020.