Times of Oman
Oman needs to slash spending by 35%: International Monetary Fund
October 19, 2016 | 8:36 PM
by Syed Haitham Hasan/[email protected]
Gulf Cooperation Council (GCC) nations’ revenue from hydrocarbons is expected to remain $400 billion lower in 2016. – Supplied picture
 
Sharelines

Muscat: Oman needs to slash spending by nearly 35 per cent to balance its fiscal budgets in 2016, according to the International Monetary Fund’s (IMF’s) latest regional outlook.

To address the mounting deficit, the government should take fiscal austerity steps targeting disposable income and IMF expects Oman to adopt measures to rein in the public sector wage bill through hiring freezes and streamlining benefits.

Get your essential daily briefing delivered direct to your email inbox with our e-newsletter

Actual oil prices for Oman Crude in 2016 remained significantly lower than the budgeted price, due to which the projected deficit for 2016 surpassed in just the first seven months. Analysts said the government will take major steps in the coming months to contain the soaring deficit.



“Individuals in Oman must brace for a possible increase in austerity measures in the coming months. Higher fuel prices, subsidy cuts in electricity and water, taxes, higher visa processing fees, recruitment freezes and salary cuts can all be potentially implemented to rationalise government spending and create income,” explained a financial expert at a leading financial advisory firm in Oman.

Contracts dry up

“Industries, which were mainly dependent on government contracts, have already faced the axe with the pool of contracts drying up. This situation is likely to continue in 2017 and can spread to crisis insulated sectors, such as the retail industry and banking, where jobs are likely to be affected,” he added.

According to Oliver Cornock, managing editor at the Oxford Business Group, subsidy cuts, along with corporate tax increases will have a direct effect on individuals. “Some subsidies have already been cut, while reductions in others are also now being explored. Value Added Tax (VAT) is also being introduced across the GCC, while the tax rate for companies in Oman is being increased from 12 per cent to 15 per cent. In the short term this will perhaps impact companies’ decisions as to whether to hire new staff or reduce the payroll. This uncertainty over future income understandably impacts consumer spending,” he said.

Cornock also pointed out that there is a significant hit to liquidity and financing in the market due to the government issuing bonds and borrowing locally.

Abdullah Al Mandhari, chief executive officer of EOR LLC said the problem is in the fragmentation of the society, where the elite are not ready to repudiate luxury consumption and that gives rise to unnecessary expenditure. “What we need now is to align our needs with the need of the local population instead of spending on lavish projects and ambitious deals. We need to concentrate on lowering this deficit through less spending and higher innovation in every sector, whether affected or not. That is the only way out of this, otherwise the general population will have to face austerity measures, which seems unfair for a few,” he explained.

Another financial expert remained more optimistic about the future.

“In the short term, there may be issues related to less business volume and business activities, but any further improvement in oil prices above $45 will boost business sentiments. In the long run, we need to increase the sustainable non-oil revenue. Investment and development in sectors, such as Tourism, Fisheries and Mining, will have huge potential to boost the non-oil revenue and create more job opportunities in the long term,” said Kannan Rajagopal, general manager at The Global Omani Investment.

Gulf Cooperation Council (GCC) nations’ revenue from hydrocarbons is expected to remain $400 billion lower in 2016, when compared with 2014, according to the IMF report.

Despite the fiscal adjustments made in the past year that included a mix of budget cuts and revenue raising measures, GCC nations are predicted to post a cumulative budget deficit of $765 billion during the 2016 to 2021 period.

STAY UPDATED
Subscribe to our newsletter and be the first to know all the latest news