Oman Introduces Set Of Measures To Face Sharp Decline In Revenues

 Oman announced it has introduced a policy of gradual fiscal adjustments aimed at boosting revenues, according to a statement issued by the Ministry of Finance on Sunday.

“The aim of such policy is to minimise [the price of oil’s] impact on economic and social aspects. Therefore, the Government has taken into consideration the importance of maintaining the services provided to the citizens, and preventing economic contraction,” said the statement. Oman, along with many other oil-producing economies, have been looking for ways to increase revenues following the drop in oil prices over the past two years. In June 2014, the price for Brent Crude stood at $115 (Dh422) but has since fallen at low at $28. On Monday, it was trading for $56.82 a barrel. Oil is a major contributor to Oman’s economy, the ministry has said.

The new measure introduced include an amended Income Tax Law that is expected to be issued this year and introducing selective taxes, concurrently with GCC countries, on certain commodities such as tobacco, alcohol and other products. Other changes include new fee for licenses of bringing foreign workers into the country, amended fees for civil services provided by Royal Oman Police (ROP), limiting tax exemptions granted for companies and establishments and enhancing tax collections efficiency, and activating monitoring and follow-up measures.

National economy

Oman’s economic performance has been affected due to low oil prices. In 2015, Oman’s Gross Domestic Production (GDP) at current prices dropped by 14 per cent compared with 2014 level. GDP has decreased from 31.2 billion rials to 26.8 billion rials. In view of the continued lower oil prices, GDP at current prices was reduced by 11 per cent over first-half of 2016, according to declared figures. However, GDP at constant prices grew by 5.7 per cent in 2015, and it is projected to be positive over 2016. Despite the sharp drop in oil revenues, the growth of GDP at constant prices came as a result of economic and fiscal policies pursued by the Government over these two years. With expected improvements in oil prices over 2017, GDP is projected to experience a growth of 2 per cent while non-oil activities are expected to rise by 4.7 per cent.

Inflation

Inflation rate in Oman remained at low level in 2016, i.e. 1.85 per cent. It is unlikely that inflation rate exceeds 2.8 per cent in 2017, according to the statement.

In 2016, the national economy benefited from the decline of non-energy commodity prices. Consumer and producer prices are expected to remain quite low over 2017. Thus, consumers would benefit from lower prices of commodity, and producers will also take advantage of lower production cost.

Public spending

The overall public spending totalled 12.65 billion rials against an amount of 11.9 billion rials estimated in the budget, increasing by 6 per cent. This caused by an increase in spending on development projects and electricity sector subsidy, as well as funding some budget items to meet necessary and urgent needs.

Deficit financing

Despite the enormous challenges for the budget, Omani government was able to obtain funding by borrowing mainly from external sources. The Government relies on borrowing from external sources to avoid crowding out private sector, and to allow private sector easily meets its financing needs. International bonds have been issued worth USD 4 billion, and also the Government obtained a syndicated loan of USD 5 billion. In addition to issuance of Islamic bonds (Sukuk) worth half-billion US-dollars, as well as loans worth USD 2 billion provided by an export credit agency.

Subsequently, borrowing from domestic and external sources, and issuance of Islamic bonds, development bonds and treasury bills accounted for (72 per cent) of total funding. The rest i.e. 28 per cent was covered by drawing on reserves.

Meanwhile, Oman on Sunday released the 2017 General Budget, which focuses on austerity measures and spending cuts owing to the plunge in oil prices. Government spending this year is projected to total 11.7 billion rials (Dh111.3 billion) and revenues 8.7 billion rials, which would result in a deficit of 3 billion rials.

Oman posted a budget deficit of 5.3 billion rials in 2016, as revenues declined by more than 30 per cent. The actual deficit has turned out to be much bigger than expected this year; it was 4.8 billion rials in the first 10 months of 2016, according to official data.

The country expects 4.5 billion rials from crude oil, 1.6 billion rials from natural gas and the remaining from other sources, according to the figures released in the official gazette on Sunday.

The ministries’ spending is estimated to be 4.3 billion rials in 2017, with a decline of 100 million rials, compared to 2016.

Spending on defence and security is estimated at 3.3 billion rials, with a drop of 100 million rilas.

The estimated deficit will be met by the international borrowing (2.1 billion rials), domestic borrowing (400 million rials) and drawings from State General Reserve Fund (500 millions).

source : gulfnews