Muscat: The low oil price environment, coupled with the effects of the pandemic, is expected to result in a 4 per cent contraction in Oman’s real GDP in 2020, according to the Ministry of Finance.
Exacerbating the fiscal situation for the Sultanate was a substantial decline in government revenues totalling in excess of RO 13 billion over the past five years – a shortfall that led a number of international ratings agencies to lower Oman’s credit ratings by two notches this year, it said.
In a statement, the Ministry attributed to sizable drop in international oil prices to the protracted effects of the pandemic, which have impacted the global demand for crude. In addition to the decline in government revenue from the oil price slump, earnings were also hit because of Oman’s commitment to the OPEC+ agreement to curb output, it noted.
Against this backdrop, the government has taken several measures to mitigate the impacts of the pandemic and the oil price downturn, said the Ministry. This includes a 10 per cent cut in the expenditures of all government departments, and a reduction in development spending and subsidies to government companies. On the other hand, the government’s revenue base through the introduction of Selective Tax (Excise Tax) last year, as well as the partial privatisation of the state-owned electricity transmission company.
These measures, the Ministry stressed, have helped somewhat ease the difficult fiscal situation for Oman. But the Sultanate is expected to continue to record an annual deficit over the medium term of not less than RO 5 billion annually, representing at least 16 per cent of the GDP. This will result in public debt projected to reach 130 per cent of GDP in 2025.
During the past decade, government expenditures increased by 90 per cent during the period from 2010 to 2014, dominated by current expenditures, the majority of which are wages, allocations towards job creation, and disbursals towards salary increases during this period. This is in addition to development expenditures, most of which were for infrastructure projects.
In response to the decline in international oil prices, which began in mid-2014 and continued for the next six years, the Omani government resorted to a number of measures to alleviate the impact of the crisis. But it avoided any steps that might adverse impact the living standards of citizens. From 2014 to 2019, financial adjustments contributed in achieving an increase in non-oil revenues by 3.2 per cent per year as a result of the application of selective tax, amendment of the corporate tax, and a modest increase in government services fees.
These measures also contributed to a 13 per cent reduction in the expenditures of government units, mostly through curbs on purchases and curtailment of contracts. Investment expenditure was cut by 25.4 per cent during this period, following a review of all new projects before their approval and inclusion in the state’s general budget.
The Ministry of Finance noted that the measures were not adequate to curb the annual deficit, which cumulatively totalled over RO 20 billion from 2014 to 2019. The deficit hit a peak of RO 3 billion in 2016.
Moreover, the public debt, which constituted 5 per cent of the GDP in 2014, increased to more than RO 17 billion in 2019. And for the first time, the public debt has now reached more than 60 per cent of the GDP. The cost of public debt (interests on loans) jumped from about RO 35 million in 2015 to RO 684 million in 2019, resulting in the lowering of Oman’s credit rating by several notches during this period.
The Sultanate’s financial position also slumped from sixth in the world in 2011 to 113 in 2016 out of 114 countries ranked by the International Monetary Fund.