MUSCAT: The FY 2022 Oman budget represents the second year of the Tenth Five-Year Development Plan (2021-2025) (FDP), which paves the way to implement Oman Vision 2040 development objectives. The budget was prepared in context of similar themes to the previous year, in that financial and economic challenges resulting from the COVID-19 pandemic persist, and the Sultanate continues to be committed to the agreement of OPEC+ in limiting the production of oil to 1.055m barrels a day alongside ongoing economic and geopolitical challenges.
The Sultanate of Oman had good reason to be cautiously optimistic in preparing the 2022 budget, as 2021 afforded a number of positives that would have factored into the budget, such as:
• the world economy slowly recovering from the initial impact of the Covid-19 pandemic, with the IMF projecting a medium-term global economic growth of 3.3 per cent and forecasting Oman’s GDP to grow around 2.5 per cent in 2021 and about 3 per cent average growth over the medium term;
• Omani actual 2021 revenues exceeding budget, and therefore strengthening the Sultanate’s efforts to meet its Medium-Term Fiscal Plan (2020-2024) of reducing its deficit;
• VAT and Excise Taxes “going live” in 2021, which allowed the Sultanate of Oman to include a new revenue stream in the 2022 budget, and to begin reaping the benefits of implementing the new fiscal policies; and
• the country’s credit outlook having improved across the three main agencies.
As such, while the 2022 General Budget is very much shaped by Oman’s Vision 2040 priorities such as achieving fiscal sustainability and reducing the ratio of the size of public debt to GDP, it does so already having hit initial milestones under the short- and medium- terms plans underpinning Vision 2040.
2022 Budget Objectives
The State’s General Budget for 2022 is consistent with the objectives of the 10th FDP, as the general budget aims to achieve the following set of economic and social development goals:
1) Encouraging investment and pushing the private sector to lead and revitalise the economic sectors, and to expand partnership projects with the private sector.
2) Maintaining safe and sustainable levels of public spending through continued implementation of the medium-term financial plan initiatives.
3) Continuing efforts to maintain balanced financial stability and intensifying efforts to support and stimulate economic activity without prejudice to the sustainability of budget indicators and public debt.
4) Giving priority to the implementation of projects that serve the economic and social objectives related to the productive sectors, especially the sectors of economic diversification, and delaying the implementation of non-urgent projects, and giving great importance in return for the operation of projects that are completed during the year.
5) Providing the necessary incentives to encourage the establishment of private sector companies (especially public joint stocks companies) to serve development and provide the necessary opportunities for investment.
6) Continuing work to improve the credit rating of the Sultanate of Oman and increase investor confidence.
The 2022 budget was built on the basis of $50 per barrel and the Ministry of Finance confirmed that a precautious approach was taken once again in this regard. This is especially in consideration of the ongoing uncertainty of the oil price scene in light of the new Covid-19 variants, and the approaching date of the end of the OPEC+ agreement in April 2022. This is despite the estimates of the International Energy Agency, the International Monetary Fund and credit rating agencies (Fitch, Moody's, Standard & Poor's, and other global agencies) that put the average price during 2022 between $53 and $84.
Revenue is budgeted to increase by 23 per cent to RO 10.6 billion (FY21 RO 8.6 billion), with oil and gas revenue representing c.68 per cent (FY21 RO 7.2 billion). The Ministry of Finance confirmed in a statement that, should revenues in excess of those budgeted at $50 per barrel be achieved, any excess will be utilised to further reduce the deficit and repay loans.
The Sultanate of Oman also foresees a rise in non-oil revenue to around RO 3.3 billion in 2022, up 6 per cent from around RO 3.2 billion in 2021 budget. This continued growth in non-oil revenues supports the country’s objective of reducing its dependency on oil and gas revenues.
The budget included higher revenues from local taxes & fees at RO 1,759 million (FY21 RO 1,622 million). VAT and Excise Tax are expected to contribute RO 450 million and RO 85 million of these revenues, respectively. Customs taxes are expected to contribute RO 260 million in revenues.
The forecasted revenue from corporate tax is estimated at RO 465 million (FY21 RO 400 million) with an increase of 17 per cent in comparison to taxes budgeted to be collected in year 2021. This is mainly due to an effective vaccine rollout and other containment measures have allowed the economy to open, while higher international oil prices have supported a broader recovery.
One of the most important pillars of the 2022 general budget is maintaining safe and sustainable levels of public spending, while continuing to raise non-oil revenue contributions, and giving priority to the implementation of projects related to the productive sectors and others. The budget aims to spend 40 per cent of the total current spending on basic services, which will be distributed as follows: 17 per cent on education, 7 per cent on social security and welfare, 11 per cent on health and 5 per cent on housing.
Government expenditure, meanwhile, will rise to RO 12.1 billion in the 2022 budget, up 11 per cent from its 2021 estimates. Actual investment expenditures represent about 24 per cent of total expenditure or RO 2.9 billion. A total of 110 investment projects will be implemented and developed in 2021-2022, and it is expected that more projects are to come from the series of deals signed by a raft of state-owned and private Omani firms with Saudi Arabian companies during the visit by the Saudi Crown Prince to the Sultanate of Oman.
In addition, the Government appears keen to outsource other services and projects to the private sector to further ease expenditure, with the aim of bringing improved efficiency and cost savings.
According to the estimates of the Ministry of Economy, it is expected that the total Gross Domestic Product (GDP) at current prices by the end of 2021 will reach about RO 30 billion. (Courtesy: PwC)