The budget is driven by the need to maintain fiscal sustainability, lower public debt and achieve higher economic growth, says Alkesh Joshi, Oman Tax Leader & MENA Energy Tax Leader at EY
I would describe the Oman Budget for 2020 as “prudent yet optimistic”. The budget is growth-oriented since there is an increase in the government spending which should provide the required level of stimulus to the economy in 2020. It is also a cautious budget since it is based on an average oil price assumption of $58 per barrel. The actual oil price per barrel for Oman crude in 2019 was $64, which is 10 per cent higher than the budgeted oil price of $58 in 2019. The budget is driven by the need to maintain fiscal sustainability, lower public debt and achieve higher economic growth that would help in sustaining employment creation.
Fiscal year 2020’s budget continues the government’s previous initiatives leading into Oman’s Vision 2040 and Tenth Five-Year Development Plan (2021-2025). According to projected results, the Gross Domestic Product (GDP) of Oman grew by 2.2 per cent during 2019. According to projections, it is expected that the Oman’s economy should grow by 3 per cent in 2020. The increase in growth was a result of the positive contribution in both oil and non-oil sectors in 2019. Revenue from oil and gas accounted for approximately 73 per cent of gross revenue during 2019, and is expected to be 72 per cent in 2020, down from the average of about 80 per cent norm prevalent in previous years. This is partly due to reduction in average oil prices and increase in contribution from the non-oil and gas sector.
Focus on fiscal reforms
One of the key indicator for any government budget is the ability to manage and maintain the fiscal deficit within controllable limits. The fiscal deficits have been continuously declining over the last five years. Key measures supplemented by control of public expenditure have played a vital role in reducing the budget deficit in recent years. The actual deficit for 2018 was RO2.9bn. The projected deficit for 2019 is RO2.6bn, compared to the plan deficit of RO2.8bn. The budget deficit for 2020 is RO2.5bn.
Boosting non-oil revenues
The Government’s efforts to boost revenue earned from non-oil sectors have had a positive impact on overall revenue of 2019. While budgeted non-oil revenue for 2019 was RO2.6bn, about 26 per cent of the total revenue, projected results indicate that actual non-oil revenue for 2019 amounted to RO3bn, accounting for 27 per cent of the Sultanate’s total revenue of RO11.1bn for the year. The non-oil revenue project in Budget 2020 is RO3.0bn which represents 28 per cent of the total revenue. Therefore, there is a conscious and continued effort to gradually diversify the economy towards non-oil sectors.
Some of the key challenges expected in 2020 could be summarised as follows:
- Containing and managing the fiscal deficit within the anticipated levels as set out in the budget
- Ensuring sufficient liquidity is available in the economy for continued expansion of the economy
- Continuing the efforts of introducing the fiscal reforms
- Ensuring robust implementation of the newly introduced legislations to create a favorable environment for foreign direct investments
We are anticipating some large oil and gas projects to continue to contribute significantly towards the economic expansion in 2020. The focus on attracting foreign investments into the free zones and special economic zones with particular reference to Sohar Free Zone, Duqum Special Economic Zone and Salalah Free Zone will also contribute towards economic expansion in 2020.