Wednesday 24 / April / 2024
Muscat: Oman needs to fast-track economic reforms and legislations, Majlis Al Shura and International Monetary Fund (IMF) advised, after an IMF official hailed the government’s economic strategy on their visit to Oman.
In the statement, Allison Holland, Chief of mission to Oman, said Budget 2017 would reduce the deficit by half to 12 per cent of the GDP, if targets are achieved. Moreover, financial reforms, banking sector growth and efforts by authorities to implement Tanfeedh initiatives will boost economy in years to come, she concluded.
IMF advised Oman to continue improving the business environment by streamlining regulatory processes and increase the level of vocational skills that will support efforts to increase private sector employment.
In further recommendations, IMF staff advised that additional measures could include phasing out remaining subsidies, restraining government expenditures and increasing non-oil revenues further.
“We have held meetings with the IMF staff and we support their suggestion that there a need to control expenditure and accelerate reforms. In Majlis Al Shura, our focus is to improve the business environment to bring the investors into the country and we have recommended the government to speed up processes related to it. We have done well in fast tracking such processes but we haven’t done as much as we want so there is certainly an area of improvement. For any reforms in subsidies, we are very careful and any decision will be made taking into account residents in the country,” Mohammed Al Ghassani, Deputy Chairman of Majlis Al Shura stated.
Responding to the IMF recommendations, Sheikh Abdullah Al Salmi, executive president of the Capital Market Authority (CMA), said; “When it comes to budget deficit, IMF takes into consideration only the figures. (But) the government is not in an easy position to cut subsidies. The government has to take into account the social and political aspects, before taking a decision to remove subsidies.”
Although the Sultanate has removed subsidy on petroleum products, natural gas and electricity consumed by large corporate customers as part of fiscal reforms in the wake of a drop in oil revenue, residential consumers still enjoy fabulous subsidy on electricity and water. Also, subsidy is available for flour mills to bring down prices of wheat flour and animal feed. This is in line with the government policy to help the common man by easing high cost of essentials within the economy.
“The authorities took important policy measures in 2016, including fuel price reform, to address the impact of lower oil prices on government finances, but implementing the budget proved challenging,” IMF team added.
“Regulatory role is key for sustaining the efficiency of the business environment. Regulatory policies have already contributed significantly to economic development in Oman. Streamlining the regulatory processes in the country can improve the business environment,” Mohammed Nayaz, Partner at EY said citing examples of cyber security policies.
“Steadfast implementation of the budget will protect policy credibility and sustain investor confidence. Over the medium term, timely implementation of the increase in corporate income tax and planned introduction of VAT and excise duties will continue improvement in the fiscal position,” Holland said on the economic recovery of the Sultanate.
Sheikh Al Salmi added that eliminating deficit is only part of the whole economic problem and the larger issue is to diversify the economy away from hydrocarbon resources. “We have lost almost 60 per cent of our oil revenue after a fall in crude prices. We need to generate revenue from other sectors through diversification, which will take time. That is the long-term solution,” elaborated Sheikh Al Salmi.
In light of declining oil prices, Oman launched Tanfeedh, the National Plan for Economic Diversification in 2016 to diversify its economy away from oil and gas. In a recent update, Tanfeedh presented its ratified initiatives in all sectors, majority of which have achieved necessary funding from private sector.
Praising these concrete actions by the government on Tanfeedh suggestions, Holland said that successful implementation of the initiatives will contribute to Sultanate’s economic growth.
“Tanfeedh has done an excellent job to provide us with a framework of what we need in terms of investment and facilitation of processes but we need to act quicker as time is against us,” Al Ghassani said.
According to Holland, the Omani banking system also remained strong despite the economic slowdown and posted significant increase in deposits while liquidity in markets appears to have eased.
“Central Bank of Oman reserves increased in 2016 from $17.5 billion to $20.3 billion and are considered adequate on a number of metrics. The exchange rate peg to the U.S. dollar continues to serve Oman well given the current structure of the economy,” she said.
“I think the Omani economy is certainly on track for recovery. The number of contracts for the industry currently is huge. We are expecting big tenders to be floated by Liwa Plastic, Duqm and companies in Salalah. It is ideal for industries in the country. When people ask me is Omani economy struggling, I tell them for the near future I see a strong economic growth in the country, not because I am positive but because of what I see,” Markus Strohmeier, CEO of Siemens Oman said.
“The Omani economy is in good shape. I believe all sectors in the country must continue to contribute in reducing the budget deficit. There is a lot going on and a lot of Omanis really want to help their country to do this. I see a great future for Oman but we need to take up responsibility and act to get Oman out of low oil price crises,” Ahmed Al Hooti, member of OCCI said.
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