Friday 15 / November / 2024
Muscat: Thanks to a hard-hitting budget and a no-nonsense attitude, Oman will survive 2017, global experts predict. A collection of financial analysts from around the globe, speaking to Times of Oman, have reported that 2017 will be better than 2016 and the Sultanate will grow under a strong budget. And if oil prices continue to rally, the country’s OMR3bn deficit could also be slashed, some believe. The experts firmly backing Oman with a dossier of fiscal evidence come from the world’s leading names in finance:
Oman’s Budget 2017 is tackling falling oil prices head on with a plan to put the country on the right path. With more austerity, cuts and the targeting of funds only to those projects and schemes that will make the country future-proof, the government hopes the annual budget will turn Oman’s fortunes around.
Revealing an OMR3 billion deficit, the budget is sure to be a bitter pill to swallow for some, with low public sector recruitment, continued austerity measures, the review and cancellation of certain subsidies, the privatisation and sale of government assets and the channelling of funding only into projects essential for Oman’s non-oil future.
Oman’s oil price plummeted to $24 a barrel last January, but with an expected increase in oil prices, the nation’s GDP is expected to expand by about two percent for oil-based activities and 4.7 per cent for non-oil based activities this year. About OMR11.1 billion was wiped from Oman’s oil and gas sales due to the low price of oil across the world.
As of December 2016, Oman’s debt accounts for 16.7% of its GDP, and the Sultanate is looking to cut subsidies in order to better balance the books for the coming years, in addition to launching its Tanfeedh initiative, which plans to speed up diversification of the nation’s economy through expansion in the tourism, manufacturing, agricultural and mining sectors among others.
Tanfeedh is expected to generate about OMR 1.7 billion to the nation’s GDP, and create another 30,000 jobs.
To balance its budgets in the short-term and continue to invest in economic expansion, Oman has issued international bonds worth $4 billion, in addition to a government loan worth $5 billion. It’s also received an Islamic banking loan for half a billion dollars and a further $2 billion from an export credit agency.
Growth will be stable
While the World Bank and ratings agencies like Standard & Poor’s and Fitch say growth will be stable and improve due to a prudent budget 2017, economists and businessmen say that recovering oil prices could even catalyse the economy.
Oman has been the most prudent Gulf state in terms of government spending over the past two years, according to global ratings agency Moody’s.
The agency believes the Sultanate made the largest spending adjustment since 2014 in the GCC and forecasts further spending cuts of around 18 per cent by 2018.
Moody’s has also maintained Oman’s rating outlook as Baa1 with a stable outlook.
Mathias Angonin, lead Analyst, Sovereign risk group at Moody’s, said: “We estimate expenditure cuts of around 14 per cent between 2014 and 2016, in dollar terms. Oman is the only GCC country where we see further cuts in spending in 2017, based on the budget for 2017. Everywhere else, after two years of spending cuts, we think that government expenditures will edge up.
Break-even oil price
“We estimate that Oman’s fiscal break-even oil price will remain around $79 in 2017. The stable outlook on the Baa1 rating acknowledges a number of strengths in Oman’s sovereign credit profile, such as low levels of government indebtedness and fiscal buffers, which will help to counterbalance potential downside risks from either a slowdown in fiscal and economic reforms, or a renewed oil price shock.”
According to Fabio Scacciavillani, Chief Economist at Oman Investment Fund, the economy is in good hands – and decent shape.
“The uptrend in the oil prices, healthier global economy and resilience of emerging markets are likely to improve the economy in 2017. If prices of oil are maintained public finance and business confidence will get a major boost,” he said.
He added that the budget showed a fiscal prudence induced by the economic downturn and the decision to pursue external borrowing and keep the assumption of oil at $45 is especially admirable.
Allison Holland, the IMF mission chief to Oman, recently commended the fiscal reforms through targeted subsidies presented by the budget.
She also highlighted the importance of diversification away from the oil and gas sector.
Global credit ratings agency Fitch Ratings had also affirmed Oman’s long-term foreign and local currency issuer default ratings (IDRs) of BBB with a stable outlook.
Fitch said that Oman’s ratings reflect its low public and external debt, strong balance sheet and high GDP per capita, balanced against its double-digit fiscal deficit and a very hydrocarbon-dependent budget and economy.
Ahmed Al Hooti, a member of the Chamber of Commerce and Industry (OCCI), said that the situation is stable in 2017 and isn’t as bad as everyone thinks.
Fix the economy
“But it’s important to learn from what we experienced and fix the economy so we can move forward in a better stance in the coming years,” Hooti said, adding that what is required to achieve stability is that most of the funds available in the monetary system should be used in the country without delay.
“The Ministry of Finance’s report during drafting of the budget stated that one of the main objectives is not to delay paying funds to the private sectors and government companies and that they have to be consistent when making the payment,” the OCCI member said.
He also advised that government should proceed with development projects already in place.
Economic development
“If the government wants to reduce spending, it’s not a problem, but you can’t slow the economic development - make it go faster,” he added.
On January 1, Oman announced Budget 2017 which assumes an average oil price of $45. According to PricewaterhouseCoopers (PwC), Oman’s 2017 budget analysis predicts net foreign borrowings to rise by 133 per cent, making this the main financing tool, in covering the deficit for 2017.
In its latest report, the World Bank said that Oman is to register between 2.9 per cent and 3.4 per cent growth over the next two years, a forecast based on an expected rise in oil prices to an average of $55 per barrel for the year.
“The budget is a very well thought out one and will help Oman overcome a lot of difficulties pertaining to deficit in 2017,” said Loai Bataneih, chief executive officer at Ubhar Capital.
“The economy will rise, however Oman still depends heavily on oil. Not just in terms of revenue but markets such as construction, logistics, food and beverages are all heavily dependent on how the oil sector works out. For now the prospects look good because prices are looking to move forward,” Bataneih said, adding that the most significant variables to look at are the OPEC deal compliance, government reaction to deficit and the PPP law and projects.
Projected deficit
Mubeen Khan, chairman of the Institute of Chartered Accountants of India in Muscat, said that he is convinced that the oil price would average much more than the assumed $45 per barrel for the year 2017 which will reduce the projected deficit of OMR3 billion.
“This may also cut down the proposed borrowings for the year 2017,” Mubeen added.
According to a spokesman for Gulf Baader Capital Markets, the projected growth of the Omani economy is 2 per cent in 2017 and the gain in oil prices will improve business sentiments while diversification plans will remain critical to the country’s economy.
Dr Anchan CK, an international investment advisor in Oman, said that there will be a stabilisation of oil prices and there will be an upswing which will certainly boost the current economy.
Promoting SMEs
“In addition, with government’s focus into sectors, in particularly promoting SME and investments, there will be an inward flow of companies, looking to expand their business horizons to MENA region such as companies from India, China and other ME countries,” Anchan said.
He added that with the launch of new project initiatives in infrastructure, tourism development, mining and with expansion of GCC markets, Oman certainly will have an edge.
Abu Taher, CEO of a private limited company in Muscat, said that the budget is a good one focusing on people and on development of the country.
“However, to energise economic growth, the labour market should be reformed and made business friendly. If visas rules are relaxed a bit, then it would help us to carry out the projects and works with less hassle,” Abu Taher, CEO of a private limited company in Muscat said.
