Budget 2018: Government outlines roadmap to the future

Energy Monday 01/January/2018 22:25 PM
By: Times News Service
Budget 2018: Government outlines roadmap to the future

Muscat: The Ministry of Finance yesterday issued a statement on the State’s General Budget for the Fiscal Year (FY) 2018.
The statement reads as follows: “On the occasion of promulgation of the Royal Decree no.(1/2018) ratifying the State’s General Budget for the Fiscal Year (FY) 2018, the Ministry of Finance (MoF) is pleased to present, in coordination with the Supreme Council for Planning (SCP), the main features and estimates of the General Budget for FY 2018, and the expected financial results for FY 2017. The fiscal consolidation efforts and relatively recovery of oil prices helped to narrow the aggregate fiscal deficit of 2017 Budget, as compared to the deficits in 2015 and 2016.
Despite the anticipated oil price recovery in 2018, the State’s General Budget is still challenged by high public spending as compared with low level of total revenues.
In addition to the implications on public finance driven by the deficit accumulated over 2015-2017, most notably of which is the rising of public debt and its burden on financial resources.
Therefore, there is a need for further fiscal consolidation to control public spending, particularly current spending; and to raise non-oil revenues in order to restore fiscal balance over the coming three years. The 2018 Budget framework comes to support the General Objectives of Ninth Five-Year Development Plan, most importantly are achieving targeted growth rates, fostering an environment that stimulate investment in private sector, enhancing the role of private sector in economic growth, and creating jobs for the citizens.
In addition to enhancing the efficiency of public spending, and making optimum use of allocations; as well as maintaining adequate level of public investment.
This is to ensure the implementation and completion of projects – as approved in the aforesaid plan and National Program for Enhancing Economic Diversification (Tanfeedh) – in key sectors including oil and gas sector. These objectives will lead to achieve a positive impact on economic growth.
Highlights of the preliminary financial results for FY 2017; and main features of 2018 Budget including measures and policies, are summarised as follow:
First: Economic developments: Global Economy: The global economy has shown relatively a clear recovery in 2017, reflected by high demand and higher levels of investment and international trade. This helped to boost the confidence about the prospects for global economic growth.
According to the World Economic Outlook (WEO) issued in October 2017 by the International Monetary Fund (IMF), the global growth rate is projected to rise to 3.7% in 2018 – with significant variation across regions – as compared with a 3.6% in 2017.
According to most of the international institutions and organisations, oil price is expected to range between US $55-60 per barrel, in 2018.
With improved climate conditions and high supply, main commodity prices are likely to remain low in 2018.
National economy: In the last two years, since the beginning of the Ninth Five-Year Development Plan, the national economy proved to be able to maintain positive growth rates.
This is despite the challenges arising from lower oil prices. As oil prices remained low in 2015-2016, oil activities contribution to GDP decreased by 21% at current prices, whereas non-oil activities contribution increased by 2.6% over the same period. This pushed GDP to grow by 5.4% at constant prices in 2016.
Gross capital formation data for the period (2014-2017) shows increase in private sector contribution to the implementation of investment schemes, rising to 52% and 60% in 2014 and 2017, respectively.
According to the growth trends in 2017, GDP rose in the first half of 2017 by 12.8% at current prices, as compared with the first half of 2016.
Non-oil activities grew by 3.8% over the same period, while oil activities jumped by 34.9% during the first half of 2017 as compared with the first half of 2016. The growth rate is projected to be positive at a rate of at least 3% in 2018.
This is driven by oil prices recovery, and efforts to diversify the economy and improve investment climate.
Second: Budget objectives: The State’s General Budget is an annual executive financial programme for the Five-Year Development Plan. Therefore, the preparation of revenue and expenditure estimates, and deficit projections in the 2018 Budget, seeks to achieve the following objectives:
Maintaining fiscal and economic stability: Fiscal sustainability and mitigation of potential risks are the main objectives that the 2018 Budget strives to achieve.
In this respect, the revenues and spending of 2018 Budget have been estimated to achieve the following:
Reducing budget deficit to a sustainable level of no more than 10% of GDP.
To keep reducing public spending, particularly current spending to a sustainable level of 40 - 45% of GDP.
To continue bring down breakeven point/price over the coming years.
Revitalising non-oil revenues and enhancing their contributions to overall government revenues by no less than 30% of total revenues.
Limiting the growth of public debt, and reduce it over the coming years.
Maintaining domestic liquidity and focusing on the external borrowing to finance budget deficit.
Raising economic growth rate: Public spending is one of the main drivers of economic growth and employment.
In this regard, the 2018 Budget sets out actions the government will take to:
Achieve economic growth by no less than 3%, and control inflation rate so as to maintain per-capita income level.
Provide allocations required to government units that help, directly and indirectly, to achieve targeted economic growth for 2018.
Allocate appropriations required for implementing the initiatives of Tanfeedh, pertaining to the improvement of investment climate, enhancement of the private sector’s role, and boosting investment rates in GDP.
Maintain adequate level of public investment, with the aim to enhance economic diversification, increase employment rates, and strengthen social development.
Enhance public-private partnership (PPP) in order to accelerate implementing more investment projects and private sector initiatives.
This is to be realised while maintaining fiscal balance at macroeconomic level.
Give special attention to allocations for the maintenance of assets, facilities, and infrastructure in order to ensure the effectiveness and sustainability of the development projects already accomplished.
Support Small and Medium Enterprises (SMEs) by allocating some of the government projects to SMEs.
In addition to, speed up the payments of SMEs and continue providing loans to the SMEs through Al Raffd Fund and Oman Development Bank.
Support efforts to the development of renewable energy sources, and “Sahim”, which is a renewable energy initiative.
This initiative aims at encouraging citizens to make use of solar panels to generate power, and feed electricity grid with electricity surplus generated from the solar panels.
Stability of Citizens’ Standards of Living: Oman has made remarkable achievements in areas such as health, education, housing, basic services and infrastructure, which uplifted the citizens’ standards of living to higher levels.
Hence, the budget quest to maintain the achievements through the following:
Education, health and social welfare sectors: The allocations approved for these sectors in 2018 Budget estimated at OMR(3880) million.
This represents the lion portion of the budget due to significant importance of the sectors for the citizens.
Recruitment: In light of the decision made by the Council of Ministers, upon the Royal Directives, to provide 25,000 job opportunities for job seekers, an executive program has been adopted to implement the decision.
The programme will run until the first half of 2018. Until the end of December 2017, around 4,800 job opportunities have been provided in the private sector.
The employment in public sector shall only be based on a needs basis, and in line with the budget situation.
National Training Fund: The Government gives special emphasis to the training of Omani job-seekers in order to enhance their skills and capacities so that they can join labor market.
In this respect, the National Training Fund has been established, and an amount of OMR62 million has been allocated to cover the cost of training programmes.
These training programmes are to adopt the latest global approaches for training and on-job training.
The Fund currently trains the first batch consisting of 4,300 trainees; and various companies have been coordinated with to employ these trainees once they finish the training.
Housing Aid, Social Housing Scheme, and Housing loans: An amount of OMR80 million allocated to continue to implement the Social Housing Scheme and Housing Aid Program for eligible citizens, as well as housing loans provided by Oman Housing Bank.
Moreover, the appropriations of housing and development loans amount to about OMR30 million.
Fuel subsidy: In the implementation of the decision made by the Council of Ministers with respect to fuel subsidy for eligible citizens, the required appropriations shall be allocated to cover the subsidy in accordance with the approved mechanisms.
Supporting SMEs: Provide allocations required to implement the catalytic initiatives conducive to the development and strengthening the role of SMEs as being one of the most sectors the economy relies on to create jobs for Omani youths.
This is in addition to contribute towards the utilization of natural resources, maximizing economic value added and economic diversification.
Third: Main Features of the 2018 Budget:
Preliminary results of 2017 Budget: Public Revenues: The budgeted non-oil revenue target was not realised, as some revenue-producing activities have been affected by the decline of oil prices, such as government investments and income tax collected from corporates working in oil sector.
In addition to delayed the implementation of some measures taken to revitalize the revenues of these activities.
Public Spending: According to the (preliminary) actual estimates, overall public spending totaled OMR12.7 billion in 2017 compared to OMR11.7 billion estimated in the budget, up by 9%.This is attributed to the rise in investment spending over development projects, oil and gas sector projects and electricity sector subsidy; as well as funding a number of budget items to meet necessary and urgent needs.
In addition to high cost of public debt service as a result of increased borrowing.
Despite the fact that the actual spending is higher than the estimated spending, the actual spending is, however, lower than actual spending recorded in 2016, by OMR208 million i.e.(2%).
Estimates of General Budget for FY 2018: Public revenues, spending and estimated deficit of 2018 Budget, are illustrated as follow:
Public Revenues: Aggregate revenues are estimated at RO (9.5) billion, increasing by (3%) as compared to expected actual revenues for 2017.
These revenues consist of oil and gas revenue of OMR(6.78) billion, representing (70%) of total revenues.
Non-oil revenues are estimated at OMR(2.72) billion i.e.(30%) of total revenues.
The following considerations have been taken into account during the preparation process of revenue estimates:
Oman’s commitment of to cut oil production in line with OPEC’s decision to reduce production volumes.
Gas revenues from Khazzan-Makarem gas field.
Selective tax revenues (After implementation)
Revenues generated from Privatization Scheme.
Improve efficiency of tax and fees collection.
Expanding in the provision of preferential services.
Public Spending: Total public spending is budgeted at about OMR12.5 billion, increasing by OM800 million i.e.(7%) compared with the estimated spending of 2017 budget.
The outcomes of measures taken to cut spending, have taken into account the following:
Current Expenditures of Ministries and Government Units:
These expenditures are estimated at OMR 4.35) billion, down by (1%) as compared to budget approved for 2017.
The current expenditures include salaries, annual allowance and entitlements of the employees of OMR(3.3) billion; and also include operating expenses of OMR(0.6) billion.
The salaries, annual allowance and entitlements account for 75% of total current expenditures of ministries and government units.
Investment Expenditures: As for investment expenditures, the work on a number of strategic projects is under completion. As follow:
The new Muscat International Airport to operate in 2018. This airport, as one of the strategic projects, will bring about a paradigm shift within tourism and logistics sectors in Oman.
The first phase of Batinah Coastal Road project, including the compensation for the people affected by the project, is completed.
Batinah Expressway project is ongoing.
Completion of Bidbid-Sur dual carriageway project, including four tunnels in Wadi Al Uqq.
The implementation of the 240-km Adam-Thumrait road dualization project.
The current projects of roads shall contribute to achieve Oman Logistics Strategy 2040 (SOLS 2040), which seeks to enhance the contribution of logistic sector to GDP.
Liwa Housing project is underway.
Water networks being implemented in various Wilayats.
In partnership with private sector, agreements have been signed to construct three new hospitals, namely Sultan Qaboos Hospital at Salalah, Al Suwaiq Hospital, and Khasab Hospital.
Provide allocations for the scholarships and grants for Omani students.
Provision of allocations for a number of new schools.
As for investment projects in Duqm, some projects have commenced such as Duqm Refinery, crude oil storage terminal, Karwa Motors,
Sino-Omani Industrial City, and Sebacic Oman Bio-Refinery for Production of Derivatives of Castor Oil. This is in addition to a number of real estate development projects, including little India Tourism Complex.
Spending, on the implementation of development projects, is estimated at OMR(1.2) billion in 2018 Budget, representing the estimated amount to be paid during the year as per the actual work in progress for the projects.
Spending on development projects has been considered not to be cut. This is to ensure the completion of all ongoing projects without delay, and make timely payments.
Several state-owned-enterprises (SOEs) currently working towards implementing a number of projects during 2018, estimated to cost OMR3 billion.
This will give a further boost to economic activity, accelerate economic growth and create more jobs.
Oil and Gas Production Expenditures: These expenditures are estimated at OMR(2.1) billion, up by (15%) compared with 2017 budget estimates.
This includes the cost of oil and gas production, and expenses required to maintain the future production levels and increase oil reserves.
Subsidies: The appropriations allocated for subsidies are estimated at OMR(725) million, higher than the 2017 approved budget by RO 330 million i.e. 84%.This is due to the increases in electricity subsidy to meet the growth in consumption.
This includes subsidies for cooking gas, housing and development loans, and operational support to SOEs.
Other Expenditures:
These expenditures include: public debt service, development expenses of SOEs, and government cash contributions to the capitals of local and international companies and institutions.
Allocations for such expenditures are estimated at OMR(685) million, OMR(140) million higher than 2017 Budget estimates.
This is due to the increasing cost of public debt service by OMR215 million; and rising of development expenditures of SOEs by nearly OMR(25) million.
While government cash contributions, to the capitals of local and international companies and institutions, dropped by OMR100 million.
Deficit: According to the (preliminary) final accounts, the actual fiscal deficit for FY 2017 is projected to be around OMR3.5 billion.
While the budget deficit for FY 2018 is estimated at OMR3 billion i.e. 10% of GDP.
In comparing the deficit during the three years (2016, 2017 and 2018), it’s clear that the deficit is declining.
The estimated deficit for FY 2018 is lower than actual deficit of 2016 by OMR2.3 billion i.e. 43%.Deficit Financing Despite the uncertainty over debt market caused by unfavorable set of global economic conditions, the Government was, however, able to finance the approved 2017 budget spending by borrowing mainly from external sources.
The Government relied upon borrowing from external sources to avoid crowding out the private sector in meeting its financing needs, as well as to enhance foreign currency cash flows and reserves.
In 2017, an international bonds worth OMR1.9 billion, and Islamic bonds (Sukuk) of OMR800 million, have been issued.
The Government has likewise obtained commercial loans valued at OMR 1.4 billion.
Subsequently, domestic and foreign borrowing accounted for (90%) of total funding, while the rest i.e. 10% was covered by drawing on reserves.
As for 2018 budget deficit, OMR2.5 billion representing 84% of the overall budget deficit will be financed by external and domestic borrowing.
The rest of the deficit, estimated to nearly OMR(500) million, will be covered by drawing on reserves.
This comes in line with the guidelines set out by the government to maintain sovereign reserve funds, and to rely upon borrowing, notably external borrowing, to finance the deficit.
Fostering the Contribution of Private Sector The most important principles of the Ninth Five-Year Development Plan are developing private sector and enhancing its role in the overall economic activity, and improving business environment and investment climate.
According to this plan, the contribution of private sector estimated at about 52% of total investments.
However, the private sector registered 60% of total investments in 2016.
This is as a result of activating a set of policies, including: Improving Investment Climate and Business Environment by Removing Impediments to Doing Business: The Government is taking measures to tackle the constraints hindering the competitiveness of Oman, including through developing the legislative framework.
In this respect, the Government is currently working towards enacting Foreign Investment Law, Public-Private Partnership (PPP) law, and Bankruptcy Law.
Establishing a national office for competitiveness to monitor international indicators in order to improve the enablers required to raise the competitiveness of Oman.
Provision of allocations for e-Government projects in order to enhance the performance of government units; and to ensure better services delivery, with the aim to engage the private sector in financing and implementing these services.
Promoting Public-Private Partnership (PPP)
To enable the private sector to play a vital role in the implementation process of development plans, a set of initiatives have been introduced, as follows: First: Capacity-building and development of national competencies.
Second: Enhancing business environment.
Third: Developing the legal and institutional framework with respect to partnership projects.
In this respect, a set of projects have been selected within the framework of Tanfeedh.
These projects are chosen to stimulate five promising sectors which are manufacturing, logistics, tourism, fisheries, and mining.
The projects are proposed to be financed through innovative financing methods in partnership with private sector Privatization Scheme Despite the financial and economic challenges posed by the decline of oil prices, affecting investment activities and capital markets in the region, the privatization scheme is continued.
This scheme is essential to promote and expand participation of private sector in the economic activities.
According to the scheme, six SOEs planned for privatization during 2018.
National Programme For Enhancing Economic Diversification (Tanfeedh):
The first stage of Tanfeedh included three key sectors which are manufacturing, tourism and logistics.
In addition to supportive sectors namely finance and innovative financing, and employment and labor market.
The Laps/workshops of the aforesaid program have proposed (91) initiatives.
The Implementation Support and Follow-Up Unit (ISFU)
is currently supporting government units concerned to enable them to implement the initiatives on time.
Enabling initiatives are being implemented currently in the manufacturing sector to ensure sustainability of the industrial sector.
Such initiatives includes but not limited to strengthening innovation infrastructure and establishing an association for the industrialists.
Furthermore, an agreement between the Ministry of Commerce and Industry and Sohar University was signed to establish a new center for industrial research and a plant for the manufacture of dies and moulds.
As for tourism sector, facilitation for tourist visa was granted to visitors- exporting markets.
In addition to enabling E-visa system.
In regards to fisheries sector, the laps conducted during 2017 concluded with (91) initiatives and projects, included three activities such as aquaculture and fishing, value added industries, and exports.
The private sector expressed its willingness to finance these initiatives and projects by 93%.It’s expected that such initiatives will help to raise the contribution of fisheries sector to GDP.
As for enabling sectors, the ISFU follows-up with the following initiatives: the National CEO program, efforts to make employment in the private sector more attractive for Omani manpower, and the introduction of Real Estate Investment Trust funds (REITs).In addition to setting up an office for credit ratings, and develop “invest easy” system.
Upon the Royal Directives, the government has allocated OMR (86.2) million required for implementing the initiatives/projects of Tanfeedh during 2017, under the supervision of SCP.
Fourth: Fiscal Consolidation and Fiscal Measures Taken to Address Budget Deficit The Government has taken a set of fiscal adjustment measures aiming at fiscal sustainability; and a gradual fiscal adjustment policy is pursued to avoid any negative consequences over economic and social aspects.
The most important of these measures are as follows: Revitalising Non-Oil Revenues:
Amending Income Tax Law.
Enhancing tax collections efficiency, and activating monitoring and follow-up measures.
Introducing selective tax on certain commodities.
Amending fees of licenses of bringing foreign workers.
Amending some fees of civil services.
Amending rules and regulations pertaining to exemptions of tax and customs duties.
Amending the regulations of lands allocation (land of commercial, tourism, industrial and agricultural use)
Adjust fees of municipal services.
Rationalizing Public Spending: Giving priority to the implementation of necessary projects that serve economic and social objectives.
Postpone the implementation of unnecessary projects.
Postpone purchasing and replacing government vehicles and equipment, as well as control capital expenditures.
To stop expanding in organizational structures of the ministries (such as creating departments and directorates).Asserting that economic efficiency, in the provision of public services and commodities, must be a key standard.
Such standard governs the preparation of annual budgets by ministries and government units.
Raising the efficiency of administrative apparatus by expanding the use of technologies in government transactions/operations.
Promoting the efficiency of state-owned enterprises in order to enhance their contributions to the economy.
Stressing the importance of implementing sound corporate governance.
Reviewing and rationalising government subsidy in order to direct such subsidy to needy/eligible citizens.
Engaging private sector in implementing and managing some projects, facilities, and activities.
The purpose is to ease the burden on the budget, and maintain good levels of investment that help to spur economic growth.
Selling government assets, within privatization scheme, notably those entail higher operating expenses or maintenance costs.
Completing the process leading to enact a Public-Private Partnership (PPP) law.
To adhere to the approved budget allocations for the ministries and government units, and no additional allocations shall be approved.
In case of any increase in oil revenues, the priority shall be given to reduce the accumulated deficit.
Fifth: Fiscal Planning and Discipline: In view of the rapid growth in public spending over the last few years, and in order to achieve fiscal discipline and contain public spending within sustainable levels.
In this respect, the Government is carrying out the following:
Developing a Multi-Year Budget Framework (2018-2021).This is to include a medium-term estimate of revenues, expenditures, deficit/surplus, and financing.
Capacity-building for tax and customs systems.
Complete the activation of a single account for the treasury in order to help ensure effective management of liquidity and cash flow.
Completing the application of Program and Performance Budget in FY 2018 to include 18 government units.
Completing the development plan for government investments performance.
Finalising the process of establishing a holding company for every sector in 2018 in order to maximize the benefits of government investments.
Supporting Public Debt Management Unit with resources and qualified staff to assume the tasks of planning, organising and managing government debt.
Also, to be able to review all means and options related to public debt in light of developments in global markets and financial position.
This is in addition to monitor local liquidity, sustainable debt level and relevant risks.
Strive to improve Oman’s credit rating.
Sixth: In conclusion: Despite the continued economic challenges posed by geo- economic factors since mid-2014, the State’s General Budget for FY 2018 coincides with a gradual economic recovery.
The Budget endeavours to achieve fiscal sustainability and sustainable growth, as well as stable levels of standards of living.
As a result of the oil prices decline since mid-2014, the Government pursued a gradual fiscal adjustment policy to tackle the implications arising from sharp fall in revenues.
This is to mitigate economic contraction. However, the government has taken into account, during budget process, the requirements of social and economic development.
2018 Budget included a set of stimulus and precautionary measures with respect to revenues and spending.
The Budget was keen to maintain the consistency and harmonization between various allocations and general objectives of the Ninth Five-Year Development Plan, as well as the initiatives/projects of Tanfeedh.
This shall lead to achieve the objectives of Oman Vision 2020, and pave the way for Oman Vision 2040.
Lastly, the Ministry of Finance is honored to extend its best wishes to His Majesty Sultan Qaboos bin Said on the occasion of New Year 2018, praying to Allah the Almighty to grant His Majesty good health and a long life.
The Ministry also would like to congratulate the people of Oman on the New Year 2018.