Sharp increase in Oman’s subsidy allocations during 2022

The Oman’s Ministry of Finance has reported a 77 per cent surge in government allocations towards ‘Contributions and Other Expenses’ – a budgetary subhead that includes subsidies and financial assistance.

In its preliminary estimates of the 2023 General Budget, the ministry announced that allocations towards ‘Contributions and Other Expenses’ soared to RO 1.898 billion in 2022, up from RO 1.071 billion earmarked in the 2022 General Budget.

The sharp increase underscores continued government financial support to vulnerable segments of the Omani community, as well as economic sectors impacted by inflationary pressures, an uptick in basic food prices and utility costs, and the lingering effects of the coronavirus pandemic. This uptrend comes despite efforts by authorities to roll back some subsidies, particularly related to energy products and utilities, as part of the government’s medium-term fiscal strategy to rein in public expenditure and pare public debt.

‘Contributions and Other Expenses’ is a budget-item that broadly includes, among other outlays, subsidies for electricity, water, sewage and waste sectors, in addition to subsidies for oil products, housing and development loans.

Significantly, the biggest jump in ‘Contributions and Other Expenses’ came in the fourth quarter of 2022.

It grew from RO 1.434 billion as of September 30, 2022, as reported by the ministry in its fiscal performance bulletin for the first three quarters of 2022, to RO 1.898 billion (provisionally), as announced by the ministry last week.

While a breakdown of ‘Contributions and Other Expenses’ for Fiscal 2022 is still awaited, subsidies towards energy products make up a significant proportion of the total.

For the 9M period of 2022, it amounted to RO 563 million, covering primarily the cost of providing electricity and water at subsidised tariffs to sections of the Omani populations.

These subsidies are expected to be gradually phased out as part of the Medium Term Fiscal Plan (MTFP) over a 10-year period spanning the January 2021–2031 timeframe.

Also benefitting from subsidy are Omani fishermen and low-income vehicle owners whose motor fuel purchases are price-capped. They are among 80,000 Omani households that are eligible to receive targeted monetary support under the National Subsidy System (NSS) set up by the government to help mitigate the impact of subsidy reform on the motor fuel, electricity and water sectors.

In addition, motor fuel prices for the general public will continue to be capped at tariffs that prevailed in October 2021 – a gesture by the Omani government to provide a measure of relief to motorists if oil prices spike to levels seen earlier this year.

Leading flour milling companies and producers of animal feed in the Sultanate of Oman also benefit from modest government subsidies.