External debt is a dilemma for many Arab countries in light of the challenges arising from the decline in international oil prices since early 2014. Economic conditions have forced many countries, including the Sultanate, to resort to external borrowing during the past five years.
Oil revenues still represent about 74 per cent of the Sultanate’s overall revenue in the new budget, and therefore external borrowing is one way to tackle economic downturns, also leading to higher debt service (interest) on such loans. The Omani government approved in its fiscal budget for 2019 the amount of RO 630 million towards external debt service, compared to RO 860 million for the current year’s debt service, according to data published by the Sultanate’s General Budget for 2020.
A review of external debt figures during the past five years shows that Omani debt amounted to RO 1.4 billion in 2014, of which RO 500 million represents external debt and RO 900 million is domestic debt. Meanwhile, public debt in 2019 amounted to almost RO 16.6 billion, of which RO 13.4 billion accounts for external debt and RO 3.1 billion as domestic debt.
External debt constitutes 77 per cent of the total public debt, according to data published by the Ministry of Finance and the Supreme Council for Planning.
The government approved the assumed price of $58 a barrel in the last and current year’s budgets, while preliminary results for the 2019 budget indicated that the average price of Omani oil reached $65 a barrel, with an increase of 12 per cent and therefore the actual oil revenues for 2019 amounted to about RO 6.1 billion, indicating that the increase in oil revenues amounted to RO 635 million.
In comparison, the total spending of the Sultanate increased last year by 6 per cent at an estimated RO 12.9 billion, but it increased to RO 13.7 billion or by RO 800 million, resulting in increased spending on a number of items.
Data of the Sultanate’s financial budget for the current year 2020 indicate that the Sultanate has been seeking since 2014 to meet these financial challenges that lead to lower reserves, a cumulative deficit rise, and public debt, along with a decline in credit capacity and instability in the trade balance.
The Sultanate’s cumulative deficit has increased during the past five years, increasing from RO 1.1 billion in 2014 to RO 20.4 billion in 2019, while the Sultanate’s annual deficit began to decline from RO 5.3 billion in 2016 to RO 2.6 billion in 2019.
The government dealt with this crisis using due diligence and transparency. It took appropriate decisions and measures to reduce the impact of this crisis, including neutralising the direct impact on the citizen due to decline in oil prices, and introduced tools to finance the deficit through some withdrawals of reserves besides internal and external borrowing. Moreover, it continues to guide its plans towards enhancing economic diversification programmes, assigning some of its work to the private sector, reviewing and reducing public spending, privatising some government companies.
It also started to review and rationalise government support, promoting non-oil revenues, expanding taxes and fees base, creating an attractive and stimulating investment climate, encouraging partnership between the public and private sectors, continuing the hedge in calculation of oil prices to estimate oil revenues and expanding the participation of the private sector and strengthening its role.
The Sultanate has set several economic and social goals to achieve financial sustainability by controlling deficit on one hand, and raising the efficiency of public spending, raising the credit rating of the Sultanate, developing non-oil revenues on the other, while enhancing the performance of state-owned economic institutions, continuing to support SMEs, completing infrastructure projects, strengthening the investments of government companies, improving the business environment to attract more foreign investments, complete the electronic transformation and giving priority to implementing the necessary projects that serve socioeconomic goals.
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