Fiscal deficit decline 29.1 pc to RO 3.76 bn in 2017

Oman’s fiscal position improved due to a sharp recovery in oil prices and reform measures undertaken by the government. The policy measures implemented to mitigate the stress conditions, including expenditure rationalisation and augmentation of non-oil revenue, have a salutary impact on the fiscal consolidation and helped in addressing the macroeconomic challenges.

The government and other concerned authorities are promoting diversification in the economy to reduce dependence on hydrocarbon sector. The Ninth Five-year Development Plan and Tanfeedh programme, both reinforce the CHAPTER I government’s vision to reduce dependence on the hydrocarbon sector by promoting non-oil economic activities.

“The pick-up in diversification would enable higher tax buoyancy, reduce pressure on government expenditure, and pave the way for more fiscal reforms in the Sultanate,” the Central Bank said.

“The improved tax buoyancy in conjunction with reduced pressure on government expenditure would also facilitate improvement in nonoil fiscal balance, which resonates with the structural fiscal balance to a large extent given the dominance of volatile hydrocarbon revenue. International oil prices increased rapidly since the second half of 2017 on account of robust global demand and rebalancing in the global oil market,” it stated in its 2017 Annual Report.

Omani crude oil price averaged at $51.3 per barrel in 2017, while 2017 budget had assumed average oil prices at $50 per barrel. Consequently, oil & gas revenues grew by 19.6 per cent, increasing their share in total revenues to 55.6 per cent in 2017.

On the other hand, non-oil & gas revenues dropped by 4.6 per cent in 2017 mainly due to a significant decline in capital repayments. On the other hand, the expenditure declined for the third year in a row during 2017, reflecting the government’s commitment towards fiscal consolidation. The decline in government expenditure by 4.9 per cent during 2017 was contributed by moderation in both current and investment expenditure.

The spending norms have been restructured aiming at a reduction in deficit and eventually restoring the fiscal balance. The current expenditure declined by 4.3 per cent in 2017 compared to an increase of 1.7 per cent in 2016, while the investment expenditure contracted by 9.3 per cent in 2017 in comparison with 11.7 per cent drop in 2016. Total expenditure as a percentage of GDP reduced to 43.9 per cent as compared to 50.2 per cent in 2016.

The higher support to electricity sector and government organisations, increase in investment expenditure for government companies and reintroduction of targeted fuel subsidy led to increase in the participation and other expenses by 6.2 per cent in 2017 compared to a decline of 45.9 per cent in 2016.

Overall, the fiscal deficit declined by 29.1 per cent to RO 3,760 million in 2017 from RO 5,300 million during 2016. Fiscal balance as a percentage of GDP improved to -13.5 per cent in 2017 as compared to -20.6 per cent in 2016.

The fiscal consolidation plan intends to streamline the spending bill and ensure a sustainable fiscal balance through reducing spending deadweight loss and generating revenue from other sources away from oil, the report said.

At the same time, the growth stimulating government expenditure is desirable to boost diversification in the economy. The government investment expenditure is required to sustain and expand the hydrocarbon production in the economy acting as a catalyst to stimulate private sector-led growth, as the government is the main stakeholder in the oil and gas sector.

The 2018 budget also continued with reforms agenda and emphasised on diversification, promoting private sector-led growth, and removal of bottlenecks and improving business environment. The budget stressed upon reducing the breakeven price of oil to ensure a sustainable economy.

Government revenues are budgeted to grow by 11.6 per cent in 2018 over the actual in 2017. The hydrocarbon revenues and nonhydrocarbon revenues are estimated to contribute about 58 per cent and 42 per cent, respectively, to the budgeted increase in government revenue in 2018.

Total expenditure is estimated to go up at a muted rate of 1.8 per cent in 2018 over the actual in 2017, with a growth in investment spending budgeted at 3.4 per cent over the actual in 2017. Overall, the fiscal deficit is budgeted at RO 3,000 million in 2018, which will be largely financed through debt.

Furthermore, 2018 budget intends to expedite the privatisation of government-owned entities or semi-government companies (manufacturing, petrochemical, and electricity industries) to elevate participation of the private sector in the economy and also contribute to government revenues.

“Other policy reforms that the government undertook include the deregulation of fuel prices, reduction of electricity subsidy, restructuring the capital increasing private sector partnership, and changing the composition between current and capital expenditures,” the report added.

Expenditure declined for the third year in a row during 2017, reflecting the government’s commitment towards fiscal consolidation