Overview:
The entire global economy went haywire since the outbreak of the Covid 19 pandemic and Oman is no exception. Besides, a steep drop in revenues due to lower oil prices also posed serious fiscal challenges to the Omani government and adversely impacted the national economy. Natural calamities like tropical cyclone Shaheen causing widespread flooding in the country’s northern coast also added to the country’s economic woes.
Regardless, Oman has been on track to realize the country’s 10th Five-year Development Plan (“10th FDP) for deficit reduction objectives and achieve a surplus budget by 2025 as the government implemented a series of economic reforms in policies and measures during 2021. The introduction of VAT is the most notable that would help supply the state exchequer to address fiscal deficit issues, diversify the non-oil economy and enhance the nation’s competitiveness and sovereign rating.
“The policies and measures implemented by the Sultanate of Oman recently have begun to show results,” highlighted Dr Saeed bin Saqri, the Minister of Economy. The government has made huge changes to the business, legal, and tax frameworks in the country for continued economic development through fiscal sustainability & economic diversification.
As per the report of the Ministry of Economy, the country is optimistic about an accelerating economy during 2022 and expects to register 5.8% overall growth. The steadily recovering investment climate in the country also suggests continued economic growth during the years of the 10th FDP.
The Fitch ratings, a global leading provider of credit ratings, commentary and research, recently revised Oman’s economic outlook from negative to stable on the back of the government’s commendable progress with implementation of its medium-term fiscal plan (MTFP) for balanced and surplus budgets and lower debt to GDP ratios leading towards reduced risks of defaults.
Standards and Poor (S&P) also forecasted the country’s economic growth to accelerate during 2022 on the back of higher global oil prices, increased oil and gas production and a growing non-oil economy. It also revised Oman’s economic outlook from stable to positive.
“We expect Oman’s real GDP to grow by 1.7 per cent this year and then accelerate to 3.1 per cent on average in 2022-2023 as oil and gas production ramps up after OPEC production limits are eased,” S&P highlighted in a research update released during last October. The growth in the non-oil economy would be mainly driven by the logistics, fisheries, agriculture, tourism and manufacturing sectors.
As the country witnessed economic normalization due to the lifting and easing of Covid-19 related restrictive protocols and boosting up of vaccination drive with almost 84% population double vaccinated, the non-oil revenue during January to October 2021 grew almost 40% Year on Year (YOY) primarily led by the introduction of VAT in April.
Budget 2022
Oman’s 2022 State Budget (RD 1/2022) was approved by His Majesty Sultan Haitham bin Tarik on 1st January 2022 through a Royal Decree and was officially published on 2 January in the State Gazette. The nation’s General Budget was documented based on Oman Vision 2040 and the 10th FDP and in close alignment with the objectives of medium and long-term plans and objectives of fiscal policy measures. The budget deficit projected was the minimum in the last 11 years, OMR 1.5 billion and down 32% YOY.
The revenue growth sharply outpaced the growth in state spending and the government mostly maintained spending on basic services like health, education and social welfare. Any additional revenue accrued from higher oil prices than that very conservatively assumed will be used to lower fiscal deficit and loan repayment, as per the budget highlights.
The Ministry of Finance (MOF) emphasized in its budget report saying, “The State’s General Budget for the financial year 2022 is consistent with the objectives of the Tenth Five Year Development Plan.” It also said, “The 2022 budget aims to achieve a set of economic and social development objectives.”
The budget outlined the economic and social guidance for 2022 and was centred on nine measures including sustainable levels of public spending; improving non-oil revenue contributions; prioritising projects involving the productive sectors; distributing government subsidies to low-income households for demand generation; maintaining spending on basic services; enhancing digital transformation; continuing improved sovereign credit ratings to boost up investor confidence; support training programmes and those linked to job schemes, while boosting job creation; and extending all necessary support for small and medium enterprises for doing business in Oman.
Oman 2022 budget projected total revenue OMR 10.6 billion while the projected expenditure was OMR 12.1 billion with a projected deficit of OMR 1.5 billion. The 32% lower fiscal deficit is primarily due to higher oil and gas receipts.
The MOF said that a cautious approach was taken and the budget was estimated based on an oil price of USD 50 per barrel. The government has considered the ongoing uncertainty of the global oil prices because of the new Covid-19 variants such as Omicron.
International institutions including the International Energy Agency (IEA), the International Monetary Fund (IMF) and credit rating agencies (Fitch, Moody’s, Standard & Poor’s, and other global agencies) however forecasted the average oil price to be hovering between USD 53 and USD 84. The budget estimated an increase in revenue by 23% to OMR 10.6 billion against OMR 8.6 billion in 2021.
The Takeaway
In all likelihood, Oman is set to witness higher economic growth this year in the light of a better and stronger performance of its hydrocarbon sector with improved natural gas production and higher crude oil output. Besides, the continued structural reforms by the government are expected to bolster foreign direct investment through new company formation in Oman.
The second half of FY 2021 witnessed higher growth momentum as increased revenue contributions came in from the non-oil sector due to the easing of Covid-19-related restrictions and VAT and excise tax implementation. The economic stimulus package announced during late November also supported the economic turnaround on the back of improved domestic demand. As revenue generation increased sequentially supporting government coffers, the estimated fiscal deficit narrowed sharply by more than 70% by the end of 2021 as against 2020.
Last but not least, the Omani government’s recent announcements of several projects towards fueling the digital transformation drive, improving fiscal performance management and enhancing SMEs and startups in the private sector will aid in achieving all-around economic prosperity.
