MUSCAT: The 2022 Oman budget is prepared in accordance with the objectives of the Tenth-Five Year Development Plan (2021-2025). This represents the first plan of Oman Vision 2040, which aims to achieve financial sustainability while stimulating economic sector diversification.
The 2022 budget reflects all government measures, endorsed by His Majesty Sultan Haitham bin Tarik, that are aimed at increasing non-oil revenues and reducing public spending on government units to achieve fiscal sustainability. The 2022 budget seeks to attract more investment, enable the private sector to play a greater role in accelerating economic growth, and create more job opportunities.
Public revenues and expenditures estimates for 2022 have also considered the Medium Term Fiscal Plan (2020 to 2024). The focus is to maintain spending on essentials like education, health care, housing and social welfare. In addition, the 2022 budget aims to improve the business environment and expand public-private partnership (PPP) projects.
Oil and Gas revenues
Oil and Gas revenues are budgeted at RO 7.2 billion – representing a 34 per cent increase compared to the 2021 budget of RO 5.4 billion, although these are 12 per cent lower than the revenue as per 2021 preliminary results of RO 8.2 billion. However, gas revenues are budgeted at RO 2.7 million – a 5 per cent increase from the 2021 preliminary results of RO 2.6 billion. Oil revenues are declining as the 2022 budget assumes an oil price of US$ 50/bbl which is less than the average price of US$ 61/bbl in 2021. This reflects a precautionary position taken in the 2022 budget, as the oil prices are uncertain due to the Covid-19 pandemic and other factors. While the global economy and demand recovers, energy markets are still experiencing fluctuation due to the latest variant of the Covid-19 pandemic “Omicron”. In case, the oil price exceeds the budget estimate, the additional revenue will be utilized to reduce the deficit and repay loans.
Non-Oil and Gas revenues
Non-Oil and Gas revenues are budgeted at RO 3.3 billion – representing an increase of 4 per cent compared to the 2021 budget of RO 3.2 billion, and a 21 per cent increase compared to the revenue as per 2021 preliminary results of RO 2.76 billion. The significant increase in non-Oil and Gas revenues reflect the government’s objective of reducing its dependence on oil revenues. The 2022 budget estimates VAT and Excise Tax revenues will increase by 29.5 per cent in 2022 i.e. to RO 535 million compared with the budgeted figure of RO 413 million in 2021. The corporate income tax revenues are also estimated to increase by 16 per cent to RO 465 million in 2022, when compared with the 2021 budget. Another significant source of revenue (RO 800 million) for the government is from the Oman Investment Authority (OIA), which owns all government investments excluding Petroleum Development Oman (PDO).
Expenditure to decline by 0.3 per cent
The cost of purchasing and transporting gas is estimated at RO 1.6 billion, an increase of RO 820 million compared to the 2021 budget, but this is 9 per cent lower than the cost as per the 2021 preliminary results of RO 1.8 billion. The significant increase in the cost vis-à-vis the 2021 budget is mainly due to the fact that after the establishment of Energy Development Oman (EDO), the methodology of purchasing gas from PDO Block 6 has changed. Accordingly, gas purchasing cost has risen significantly - RO 1.4 billion as per 2022 budget vis-à-vis RO 650 million in the 2021 budget. However, this has also led to an incremental increase in gas revenue compared to the 2021 budget.
Development expenditure is budgeted at RO 900 million - in line with the 2021 budget, but 18 per cent less than actual expenditure as per 2021 preliminary results of RO 1,100 million. This represents the amount estimated to be paid during the year as per the actual work in progress for the development projects, which have been re-prioritized in terms of urgency, cost and economic and social returns using a Matrix of Projects methodology, as developed by the Ministry of Economy.
Public debt service costs
Expenses for servicing public debt are budgeted at RO 1,294 million – an 8 per cent increase compared to the 2021 budget of RO 1,200 million and a 21 per cent increase from the 2021 preliminary results of RO 1,070 million.
The 2022 budget deficit is estimated to be RO 1.55 billion – a 27 per cent increase from the actual deficit of RO 1.2 billion as per 2021 preliminary results. The 2022 deficit is proposed to be financed through external and domestic borrowing (74 per cent) and drawing on reserves (26 per cent).
The oil and gas revenues in the budget 2022 are estimated higher than the tenth five year plan as the oil prices are assumed at US$ 50 per barrel owing to an increase in oil prices as compared to US$ 45 per barrel in the tenth five year plan. With regards to the expenditure, there is only a significant change in the gas procurement expenditure, on account of the change in the methodology of purchasing gas from PDO Block 6, after the establishment of EDO and gas transportation expenditure due to increase in the volume of gas. The 2022 budget deficit of RO 1.55 billion is broadly in line with the deficit of RO 1.66 billion in the Tenth Five-Year Plan.
According to the preliminary estimates by National Centre for Statistical Information (NCSI), Oman’s GDP is targeted to grow by 13.8 per cent at current prices, reaching RO 32 billion by the end of 2021. The government seeks to achieve a growth rate of 2.5 per cent at constant prices in 2022.
The IMF projects that emerging markets are expected to witness inflation rates as high as 6.8 per cent in 2021. However, this is expected to decline and average 4 per cent from 2022 onwards. [Courtesy: KPMG Oman]