Deficit to come down as oil prices recover

By Samuel Kutty — MUSCAT: FEB 26 – The recovery in the oil prices along with a mixture of tax hikes and subsidy cut is expected to help the Sultanate put its fiscal house in order. According to financial experts, the present price of crude above $55 does bode well for the economy and its budget.“Any price above $50 is good enough for Oman to cut its deficit. It will have a positive effect on government plans”, said Louay Badie al Bataina, CEO of Ubar Capital.
Oman crude is hovering above $55 following an agreement by key oil producing countries to cut production by 1.8 million bpd.
According to Bank of America Merrill Lynch, crude prices will average $50 to $70 a barrel through 2022, as demand outpaces supply on average over the forecast period.
World Bank said in a report earlier that oil prices are likely to average $55 per barrel this year as markets are expected to tighten in the second half of the year.
The total crude oil and condensates production in the Sultanate during January 2017 stood at 29,934,132 barrels, a daily average by 965,617 barrels, constituting a decline by 2.97 per cent compared to the daily production during December 2016.
Oman was part of the group of 11 non-OPEC producers — including Russia — that had agreed to act jointly with the cartel to cut oil supply.
At the same time, revenues increased to RO 1,181.10 million in December from RO 695.80 million in November of 2016.
According to al Bataina, as soon as the fiscal measures including taxes take effect along with the recovery in the oil prices, the government will be able to reduce its deficit.
Increases to various fees and levies, removal of corporate tax exemptions and an increase in its rates from 12 per cent to 15 per cent could boost non-oil revenue by one per cent of GDP in 2017, he said.
“This will help the country enhance its ratings and place it in a comfortable zone as far as the debt is concerned. Also this will pave way for more attracting foreign investments”, Al Bataina said.
Suleiman al Lawati, a banking official said that oil above $50 will definitely have a positive effect on government plans, especially it will give boost to the diversification plans.
According to data from Central Bank of Oman, the country’s budget deficit for 2016 stood at RO 5,010.5 million, which is lower than an initial RO 5,300 million estimated by the government at the time of announcing 2017 budget.
At the same time, RO 2.5 billion, which is 84 per cent of the projected 2017 deficit will be financed by external and domestic borrowing. External US-dollar borrowing includes issuance of international bonds, Islamic bonds (Sukuk), and syndicated loans.