Saturday 20 / April / 2024
Muscat: Government plans to review and gradually cut back on the hundreds of millions of rials it pays every year in subsidies to support Oman’s population have been supported by economic experts.
In Monday’s extensive budget announcement from the Ministry of Finance one of the strategies to get Oman’s cash flow under control was ‘Reviewing and rationalising government subsidy in order to direct such subsidy to needy citizens. However, the subsidy will be cut gradually’.
Also read: Budget 2017 aims to put Oman on right track
That was one of a host of measures announced as the ministry revealed this year Oman would run OMR3b deficit, with the 2017 budget including OMR395m allocated for state support in the form of subsidies. Experts agree that a gradual removal of subsidies is needed to help Oman in difficult times. Last year, in a bid to save money, the government decided to cut OMR100m worth of subsidies for large commercial, government and industrial users from January 1, 2017.
“There are significant budgetary savings that can be gained from further subsidies reform in Oman. The liberalisation of fuel prices was a positive and critical first step. Further reform will be necessary,” His Highness Dr Sayyid Adham Al Said, Assistant Professor of Economics at Sultan Qaboos University and Managing Partner of The Firm, told Times of Oman.
Watch: Drivers pay 45 percent more on fuel in Oman
“The key word is gradual and not sudden. Moreover, it is important to communicate any reforms clearly and precisely, advising the public of costs and benefits and timeline,” he added.
According to the expert, current subsidies are warranted as they act as a buffer during difficult economic times.
Better economic times
“Generally speaking subsidies should be removed during better economic times so as not to cause further disruption, while wasteful, current subsidies are likely to shore up consumer spending in the immediate short run. While business benefits too, it is prudent to get them realistically competitive based on true international costs,” he added.
According to the decision, the new tariffs for 10,000 businesses in the country who use at least 150 Mwh annually, came into effect on January 1.
“Complete subsidy removal is essential over the medium and long term. Immediate removal of all subsidies would have adverse economic and social effects especially on economically pressed. Gradual removal and targeted subsidies where they are most needed,” the expert said, adding that while budgetary concerns place pressure on sustaining subsidies one should caution against haste removal of subsidies without clear economic and social safety nets.
In November 2016, Oman’s Minister of Oil and Gas Mohammed bin Hamad Al Rumhy had also said that government subsidies must be targeted at the poor instead of subsidising those who have no need of them.
Citing his example, he mentioned that he himself is eligible for subsidies from the government that he doesn’t require.
“General subsidy cuts are unfair to residents as they are harsh on people with less income levels,” said Dr Al Said.
Meanwhile, Joby Joseph, a senior Chartered Accountant in Muscat said that he also recommended a gradual removal of subsidies.
“But this should not be done all of a sudden, as that would create a lot of imbalances and noise especially from the socially and financially backward people. This is because subsidy withdrawal is ultimately absorbed by the general public or citizens of the country,” he said.
OMR400 million subsidies
“Although it is true that the government is not in a position to afford the OMR400 million subsidies but then the implementation of the removal of subsidies needs to be done in a time-bound and concrete manner in phases to address the issue. There should also be an additional cushion for financially backward people,” he added.
The chartered accountant also said that the rich and poor getting the same level of subsidies needs to be taken care of, adding “have and have-nots are enjoying the same level of subsidies, so maybe the government should implement this with high level planning and in a phased manner to also minimise the impact on the poor.”
Dr Anchan, an investment advisor in Oman, said that like any other Middle East country, Oman is also facing challenges over the volume of oil and non-oil revenues, rates of economic growth, financial position of the government and its monetary policy, the size of the savings versus investment rates, rates of oil production and prices expected during the current year, 2017.
Non-oil revenues
“In addition to increased non-oil revenues, Oman’s government should introduce new taxes, cutting fuel and energy subsidies, and slowing down on the government’s rising wage bill to cope with the global oil crisis,” he said, adding that Oman has been cutting state subsidies and introducing other austerity measures to curb a budget deficit of OMR4.02b in the first seven months of 2016, up from a deficit of OMR2.39b the previous year.
Loai Bataineh, CEO, Ubhar capital, said that he also believes that subsidy should go to the needy and it is unfair to have equal subsidies for both who can easily afford an item and those who can’t.
“Subsidy should go to the needy. I think the budget is good and well planned at oil price per barrel at a decent rate. Only thing missing are the details. For example I would want to know where the government is planning to invest the money that has been kept aside for investment,” he said.
