Muscat: Oman’s austerity driven State Budget has been welcomed by the International Monetary Fund (IMF), describing it as a major stride towards strengthening the country’s financial position.
In an exclusive interview to the Times of Oman, Allison Holland, IMF mission chief to Oman, appreciated the government’s efforts to slash expenditure and increase alternate sources of income.
“The large reduction in deficit targeted in the 2017 budget is very welcome. While higher oil revenues are expected to contribute substantially to reduce the deficit, it is encouraging to see the government’s commitment to take additional measures to reduce government expenditure and increase non-oil revenue,” she added.
Oman’s 2017 budget, revealed on January 1, replicates previous year’s budget but includes more prudent fiscal reforms, such as taxes and subsidy cuts, to increase revenue and cap the soaring
deficit. Studies by the IMF have shown that energy subsidies, like the one that was introduced in Oman in January 2016, can be poorly targeted and often benefit wealthier households. However, proposals in budget 2017 target niche audiences, like big time users of electricity, sparing smaller users from inflated costs.
Holland believes that the targeted nature of subsidy reforms is an excellent method to adopt.
“We welcome the reforms to reduce fuel and power subsidies targeting larger users, which have already generated important savings for the budget, thus allowing other forms of expenditure that can be diverted to health and education.”
Targeted subsidies have been advocated by officials across Oman, including Mohammed Al Rumhy, Minister of Oil and Gas. While speaking to the media, he said electricity subsidies currently provided to high income individuals were unfair and should be scrapped.
Holland added that if upcoming subsidy cuts can be phased out in a similar fashion and budget savings can be generated while simultaneously exempting poorer households, scarce resources can be used to protect lower income groups in a more efficient manner.
Despite government initiatives such as Tanfeedh, Oman’s national plan for economic diversification and Vision 2020, Oman’s economy is still heavily reliant on oil and gas with around 70 per cent of the revenue coming from the sector. According to Holland, prices of oil are unlikely to reach 2014 levels and, therefore, the deficits will persist and Oman will need to make more efforts to maintain economic
“Steps to reduce deficit must continue. Effecting change in corporate income tax law that has been proposed and reducing exemptions will play an important role in the country’s economy,”
Holland also praised the government’s efforts to continue spending on infrastructure, which is the key to private sector growth.
Much of the non-oil and gas revenue listed in the budget 2017 is in the form of tax and fee revenues, including corporate income tax, excise tax on tobacco and alcohol, non-Omani labour fees and custom duties.
According to Mohammed Nayaz, an advisory partner at EY, the budget strikes a right balance between economic growth and cost optimisation.
“Funding a large component of the OMR3 billion worth of budget deficit through foreign loans is a move in the right direction. The amendments to the tax legislation and the increase in fees for certain services provided by the ROP are expected to lead to increased non-oil revenue. Overall, we expect the budget to strengthen the economic climate in the country and bring in the much needed positive perception amongst the corporate world,” he said.