Oman on right course with reform process Oman’s projected budget for fiscal year 2015 is not materially different from last year’s plan notwithstanding the ongoing plunge in oil prices. Clearly, this signals a determination on the part of the planning authorities to maintain the pace of economic activity and thereby address the challenges and opportunities in front of the sultanate. The budget for 2015 has expenditures and revenues totalling $36.6 billion and $30 billion respectively, for a deficit of $6.6 billion. This would constitute around 8 per cent of the gross domestic product, which is around $82 billion, and fifth among the Gulf states. Incidentally, the Gulf Monetary Union, of which Oman is not a member, restricts budget deficit to 3 per cent of the GDP. Four of the Gulf states — Saudi Arabia, Qatar, Kuwait and Bahrain — have been following the GMU precepts since 2010. If history is any guide, actual figures for fiscal year 2015 could end up being different from the planned one. For instance, the tentative final figures for 2014 have expenditures of $37.5 billion, up from a planned $35.1 billion, and revenues of $36 billion versus the budgeted $30.4 billion. The deficit thus totals $1.5 billion rather than $4.7 billion. Unlike what is norm, Omani finance ministry officials have opted not to reveal the oil price used in calculating 2015 revenues. The oil sector, including gas, is the primary source of treasury income, comprising around 76 per cent of the total on average. In turn, petroleum revenues are divided into 63 per cent oil and 13 for cent for gas. The budget for fiscal year 2014 was prepared with an assumed average oil price of $85 per barrel. Worryingly, the New Year has started with a steady slide in oil prices, reaching below the psychologically significant $50 per barrel. On a positive note, the authorities intend to press for economic reforms in the light of the slide in oil prices. A new privatisation programme is planned for the next three years, ostensibly designed to reduce the public sector’s burden. Another scheme calls for reengineering the subsidy programme, especially on petroleum products and utilities. Currently, the needy and well-off, locals and expatriates alike benefit from governmental subsidies, at a cost to public financing, something that is increasingly seen as unsustainable. To be sure, the reasons for reforms are indicative of the importance of public spending in the economy, with projected 2015 expenditures comprising 45 per cent of GDP. Traditionally, governmental spending has remained below 40 per cent of GDP. The change partly reflects the steady growth in public spending when compared to the level of economic expansion. Fortunately, the increased governmental spending is not causing inflationary pressures. The rate stands at around 3 per cent, partly reflecting the absence of pressures from external factors. Certainly, major exporting countries find little reason for raising prices of their commodities. The stronger spending should help Oman address the challenge of relatively high unemployment rates. According to the World Economic Forum, joblessness rate stands at 8.1 per cent, the worst within the GCC. Youth unemployment is around 20 per cent, the third worst in the regional grouping after Saudi Arabia and Bahrain. The new strong budget should pave the way for addressing major socioeconomic challenges whilst strengthening the sultanate’s competitive advantages in the areas of broad services sectors like tourism. Source:gulfnews gulfnews/business/economy/oman-on-right-course-with-reform-process-1.1438980
Posted on: Sun, 11 Jan 2015 09:26:54 +0000
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