MUSCAT: A new report said to the American Al-Monitor website that efforts have been taken to put public finances in the Sultanate of Oman on a healthy track. Initiatives have been taken to address the chronic public budget deficit which will bear fruit due to the sharp increase of prices in oil, the Sultanate’s main export.

The three sources in the Sultanate’s National Fiscal Balance Program were quoted saying that the financial situation in Oman is “very stable and improving,” noting that the program is also known as the Tawazun program, and it reports to the Ministry of Finance.

It was also stated that maintaining balanced public finances has been a race against time since 2020, noting that Fitch Ratings has upgraded Oman’s outlook to “stable” from “negative” in December 2021 which reflects improvements in key financial measures.

Interestingly, Fitch also pointed out the significant correlation between oil price fluctuations and the country’s financial health, estimating the high revenues from hydrocarbons, which grew by only a third. This contributed to shrinking the budget deficit by more than half of the deficit, which shrank in the fiscal year 2021 to nearly five double what it was in 2020.

The non-oil revenues are on a steady upward path as well, supported by the recovery from the economic repercussions of COVID-19. After which Oman imposed a corporate tax, with the introduction of a value-added tax of 5% in April 2021, and the tax is expected to provide 450 million riyals to the government. 2022, or about 13.5% of its total non-oil revenues.

A source in the National Program for Financial Balance quoted that plans to launch the first income tax in the Gulf on high net worth individuals are still on the right track.

The report emphasised that there may be additional relief in the future because the 2022 budget is based on a barrel of oil at $50, which is much lower than current oil prices, and Tawazun sources estimated that the vast majority of the excess oil revenues will be allocated to reducing public debt, estimated in 2021 with 68% of GDP.

This will contribute to reducing government interest payments, which increased, against the background of the rise in public debt, from about 35 million riyals in 2014 to nearly one billion riyals in 2020.

Dhahabiya Salim Gupta, Assistant Director of Standard & Poor’s Global Rating Agency, said, “Despite the improvement in financial conditions, the financing requirements in Oman are still large, as the external maturities will amount to about $6.5 billion in 2022, before it reaches the average of $3.5 billion between 2023 and 2026.”

James Swanston, an economist for the Middle East at Capital Economics, said, “If oil prices fall, and Oman needs to issue new debt, it will have to do so at higher rates.”
A Tawazun source said, “It wouldn’t be wise to bet that oil will always be there and will always be needed, so to be financially sustainable, you can’t plan your economy around a single commodity.”

In the long term, Oman plans to develop several economic sectors, such as tourism, mining and logistics, to develop jobs for citizens and new revenue streams for the government, Abdul Rahman Al Hatmi, CEO of ASYAD Group said.