Stronger oil prices offset lower energy production in Oman, as the government moved to accelerate fiscal reforms and broaden its revenue base.
Oil output fell 3.7 per cent year-on-year (y-o-y) in the first 10 months of 2017, with production averaging 970,000 barrels per day (bpd), down from 1m bpd in the same period of 2016. However, an improvement in average prices saw oil earnings rise 32 per cent, according to the National Centre for Statistics and Information (NCSI).
Bolstered by a 10.7 per cent increase in gas revenues to October, the higher hydrocarbons earnings helped Oman narrow its budget deficit to RO 3.2bn ($8.3bn) by the end of October, down from RO 4.8bn ($12.5bn) in the same period the previous year.
The year-end deficit is expected to reach RO 3bn ($7.8bn), according to forecasts from the 2017 budget, down from RO 5.3bn ($13.8bn) in 2016 and on a par with projections for 2018.
Despite state revenue rising by 19.2 per cent y-o-y over the first 10 months of the year, Oman’s GDP growth is expected to fall by around 2.7 percentage points to 0.1 per cent over the course of the year, pushed down by cuts in oil production.
In its economic outlook for 2017, issued in October, the World Bank forecast Oman’s real GDP growth would slow from 2.8 per cent in 2016 to 0.1 per cent. Non-hydrocarbons growth is also expected to ease, slipping from 3.4 per cent to 2.5 per cent on the back of lower public spending, and the knock-on effects of falling consumption and a decline in investment.
The IMF, meanwhile, anticipated flat growth of 0 per cent for Oman in its regional outlook report, also released at the end of October. However, it added the economy was set to rebound in 2018 on growth in both the oil and non-oil economy; GDP is forecast to expand by 3.7 per cent, well above the GCC average of 2.9 per cent.
Inflationary pressures remained subdued during 2017, even though higher oil prices pushed up transport costs, and cuts in government subsidies led to a rise in the price of water and electricity. Average annual inflation was measured at 1.6 per cent in January-October, according to the central bank.
The last year saw the government take steps to generate new avenues of income by reforming Oman’s tax system. Introduced in February, the changes included an increase in corporate tax from 12 per cent to 15 per cent, and the withdrawal of the RO 30,000 ($78,000) tax-free ceiling. A 3 per cent income tax was also implemented for certain small-scale taxpayers, while the 10 per cent withholding tax was extended to encompass dividends, interest and payments for services.
The government hopes the new taxes will generate an additional RO 125m-250m ($325m-650m) per year, although some analysts feel the measures could deter investors.
“The introduction of withholding is negative for banking. The sector now pays taxes on interest payments and fees paid to overseas banks, which local banks tap for liquidity from time to time,” Lloyd Maddock, CEO of Ahlibank, told OBG. “However, the increase in the corporate tax rate from 12 per cent to 15 per cent is still internationally competitive, and manageable.”
Amid concerns about investor interest, the government introduced a series of measures throughout 2017 designed to improve the business environment and facilitate private sector growth.
Initiatives included enhancing the online single-window system for exports and imports, thus reducing the time required for documentary compliance and improving cross-border trade; easing processes related to obtaining construction permits; and speeding up the incorporation of businesses and registration of employees.
The reforms helped Oman rank 71st out of 190 countries in the World Bank’s ease of doing business index for 2018. Although the country slipped five places from its 2017 standing, Oman’s overall score of 67.2 was well above the MENA regional average of 56.7.
(Courtesy: Oxford Business Group)
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