Oman’s 2020 budget is a balanced one with greater focus on reforms coupled with the continuation of spending on vital projects, says Lo’ai Bataineh, CEO of Ubhar Capital
We believe the government has very prudently continued its expansionary budgetary plans. The government has set its intentions very clear about 2020 that there will be across-the-board expansion and no stone will be left unturned to boost the sentiments. Not only has the budgetary spending been set higher than last year, but at the same time additional spending has been earmarked outside the budget in various sectors. Government also did not mention implementation of VAT or any other tax in 2020, meaning maintenance of cost structure of various companies who are already burdened by cheaper products from neighboring countries. These announcements are very encouraging and reassuring signs of the investors.
A balanced budget
The government has kept the oil price estimate low, raised non-oil revenue expectation, increased budgetary spending, set additional spending outside the budget and allotted 40 per cent for basic services. All such measures point to a balanced budget with greater focus on reforms as well as continuation of spending on vital projects. Of the total current expenditure, government has allotted 40 per cent to the health, education, housing and social security. The contribution to these sectors have risen from 32 per cent in 2016 and 39 per cent in 2019. The government announced various developmental projects in the field of health and education as well. In health, government announced construction of hospitals in Salalah, Khasab and Suwaiq along with completing a number of health centres. In education, government announced construction of a number of schools and additional facilities for some existing schools. Government has also planned multiple projects in the transport sector as well. Apart from that, the government has outlined goals such as enhancing the contribution of non-hydrocarbon revenue to overall government revenue and rationalize public spending while enhancing its efficiency.
Non-oil revenue budgeted for the year 2020 has been budgeted at RO3.0bn, compared to budgeted 2019 number of RO2.65bn, higher by 13 per cent. This increase is due to higher tax revenue by 9 per cent and non-tax revenue by 18 per cent, as compared with what have been achieved in 2019. This comes in line with government’s efforts to diversify the sources of income and enhance non-hydrocarbon revenue. The recent establishment of Tax Authority will also aid in improving the efficiency of tax collection. Government also announced giving priority to the implementation of high-priority projects that serve economic and social objectives and privatisation of some state-owned entities which give additional revenue to the government and increase their efficiency as well.
Despite huge focus and estimated growth in non-oil revenue, oil revenue continues to be more than 2/3rd of the estimated budgetary revenue. Oil prices are exposed heavily to various risks in 2020 which can swing the fortunes of Oman both ways. But the government has prudently kept the budgeted oil price low compared to what international bodies and oil agencies are expecting around the world. Globally, protectionist trade policies and slowdown in big economic centres like China, US and India could catapult the global economy into another deep economic crisis. Regionally, various economies around Oman are reforming at a rapid pace which might result in more geographic asset alloc ation of foreign inflows towards them. Lastly, the region continues to be exposed to various political challenges which will continue to pose Oman with both challenges and well as opportunities.
However, the smooth succession after the demise of Sultan Qaboos and the swift appointment of the new Sultan has reassured investors. It will help Oman’s economy when it comes to the pricing of loans, when the government wants to raise new debt or refinancing the existing debt. The prices have improved giving a good sign to the foreign investors who are buying Omani debt with a premium, compared to a few weeks before.