As the Sultanate of Oman prepares to ring in the New Year, the first order of business for the Omani government today, January 1, is to present the 2022 State Budget upon its approval via Royal Decree by His Majesty Sultan Haitham bin Tarik.
But pre-budget glimpses, shared by top government officials in recent days, point to a conservative budget in store for 2022. While buoyant oil revenues and a shrinking deficit are welcome signs that a recovery is well underway, public spending will still remain in check broadly for the foreseeable future in line with the country’s Medium Term Fiscal Plan (MTFP) which aims to, among other things, bring the country’s public debt to manageable levels.
Accordingly, fiscal sustainability is expected to be the overarching theme underpinning the 2022 State Budget – a key principle reiterated by the Ministry of Finance earlier this week.
“Over the past few years, the national economy experienced frequent fiscal challenges posed by a sharp drop in oil prices, lower oil demand, high public debt, and the implications caused by the COVID-19 pandemic. These challenges have adversely affected Oman’s creditworthiness and borrowing cost,” the Ministry said in a pre-budget statement.
“Therefore, the 2022 Budget draft was prepared while taking into consideration the existing challenges, in line with the Tenth Five-Year Development Plan (2021 - 2025) which reflects the first plan of Oman Vision 2040. The fiscal sustainability and stimulus of economic diversification sectors are among the top priorities,” the Ministry emphasized.
Nevertheless, budget estimates published by authorities over a week ago affirm a commitment to ensuring the “continuation of basic services delivery such as education, health care, housing and social welfare”.
Total public spending is projected at RO 12.130 billion in 2022, representing a marginal 0.3 per cent increase over the corresponding, provisionally estimated, figure of RO 12.167 billion in 2021. Total revenue is estimated at RO 10.580 billion in 2022 (versus RO 10.944 billion provisionally estimated for 2021). This leaves a deficit estimated at RO 1.550 billion for 2022, which is roughly equivalent to five per cent of GDP, according to Ministry figures.
Fiscal prudence, according to the Ministry, has contributed to the paring of the annual budget deficit year-on-year. From a high of RO 4.422 billion in 2020, the deficit was anticipated to roughly halve at RO 2.240 billion in the 2021 approved budget. But preliminary estimates for 2021 published by the Ministry this week show that deficit is on track to falling further to an impressive RO 1.223 billion in 2021.
Preliminary figures for 2021 released by the Ministry underscore evidence of a dramatic turnaround in the national economy, aided by a combination of robust oil prices, strengthening non-oil activities, and other factors.
The country’s GDP climbed a notable 10.9 per cent (at current prices) to reach a value of RO 15.302 billion at the end of Q2 2021, up from RO 13.898 billion over the same period in 2020.
“This is mainly attributed to an increase in the average price of crude oil by 9.9 per cent as of the end of Q2-2021. The value added of non-oil activities amounted to RO 11.456 billion by the end of Q2-2021, up by 11.1 per cent compared with the same period in 2020,” it said.
At this pace, the GDP is projected to hit RO 32 billion by the end of 2021, buoyed by an uptick in oil prices averaging $61 per barrel during the year, versus an average of $48 per barrel in 2020. The contribution of hydrocarbons to the GDP (at current prices) is estimated at RO 9.3 billion in 2021 versus RO 7.6 billion in 2020. Similarly, non-oil GDP at current prices is estimated at RO 22.7 billion in 2021, rising 9.1 per cent from the previous year’s figure of RO 20.8 billion.
But despite the overall positive outlook, the Ministry warned that the public debt burden will continue to weigh on the annual budget over the coming years. Significantly, around RO 1.294 billion – representing over 10 per cent of the total estimated expenditure in the 2022 Budget – is earmarked towards servicing the country’s burgeoning public debt stockpile next year alone, it noted in this regard.