Will Oman’s 2017 budget cushion the economy?

Opinion Saturday 15/October/2016 21:55 PM
By: Times News Service
Will Oman’s 2017 budget cushion the economy?

Oman has had a tough financial year in 2016, due to spending cuts and major projects being shelved, but the real challenge the government faces is to formulate next’s year budget without compromising economic development.
Economic growth in 2017 is out of the question under the current circumstances. The government has already asked the civil ministries to submit their funding but with caution. A circular to ministries said, “All the entities (ministries and government organisations) concerned should use their available financial and human resources to achieve the desired economic goals while controlling the expenses.”
Obviously, Budget 2017 is now being finalised to reflect the low oil prices. All indications are that there will be limited recruitment for civil jobs and no expansion in infrastructure.
Despite a strict instruction from the Ministry of Finance, there was a sharp increase in the expenditures of ministries in the first quarter of this year, placing an extra burden on the expenditures.
Oman enjoyed a series of surplus budgets from 2009 to 2014, but last year its revenues declined by 35.7 per cent to OMR9.07 billion.
The actual deficit in 2015 was recorded at OMR4.63 billion, about 45 per cent higher than the predicted deficit. The government has wiped out this deficit by withdrawing from its reserves and borrowing in the local market.
This year, the Ministry of Finance is faced with an OMR3.3 billion deficit to be covered from estimated revenues of OMR8.6 billion and expenditures of OMR11.9 billion.
The bad news is that Gross Domestic Product (GDP) declined by 12.2 per cent in March 2016, compared with the year earlier. During the first seven months of this year, oil revenues took a hit, dropping by 46 per cent. The actual deficit was pegged at OMR4.023 billion up to July 2016, which is 22 per cent higher than the deficit budgeted for this year.
However, 2016 was better covered than the previous year, with new measures introduced, such as the removal of fuel subsidies and a freeze of employment in the public sector.
Without any doubt, the budget for 2017 will have tough choices. The Ministry of Finance and its financial committee is expected to come up with a well-thought out plan, aimed at reducing spending. There will not be any surprises for next year’s budget, either.
There will also be no debate whether to cut the 2017 budget lower than that of 2016. It is just a matter of how much to cut.
Revenues will not be inflated either. Currently, oil prices are just under $50 a barrel, but a little higher than the price this year’s budget is estimated to be. Many would say it would be prudent to base the 2017 budget on an average oil price of $45 per barrel, at the same level as this year.
It will not be a great surprise if the government looks elsewhere to increase its non-oil revenues in 2017. Cuts in fuel subsidies are not enough. One of the possibilities hotly debated is the introduction of the Value Added Tax (VAT), rather than wait until 2018 as planned.
The other possibility is to downgrade the number of civil servants working in the private sector to reduce current expenditures. However, to have a slimmer civil service workforce is not easy, but the government could offer early retirement to thousands of workers, who no longer give value to the public sector.
It is not a secret that the civil service employs more people than it needs. The 2017 Budget may also abandon all investments and concentrate on essential expenditures, such as health, education and security. The good news is that the next budget will not be as hard as this year. The government is well prepared for the austerity measures.