Oman Budget 2017

The Oman government has published the Budget for 2017. Not unexpectedly, given the country’s reliance on oil, it shows a substantial deficit which is anticipated to be 28% of Government Revenue. The deficit during the remaining years of the government’s 5-year plan to 2020 is again projected to remain between 25-30% each year. The government is anticipating a rise in its expenditure from a projected Omani Rials (OMR) 11,165Billion in 2017 to (OMR) 14,100 in 2020.

This will partially be supported by a hoped for rise in oil revenues from (OMR) 6,110 in 2017 to (OMR) 8,060 in 2020 – with an anticipated oil price rising to USDollar 60 in 2020 (from around USDollar 43 in 2016).

In 2016 the Oman government issued Bonds of USDollar 2.5billion and intends to introduce VAT by 2018 . These measures to manage the deficit are likely to be supported by divestment of government owned companies – though in many cases the divestment is to a largely ‘semi-government’ organization. The government has also announced reduction in subsidies principally in energy consumption, including fuel resulting in an almost 40% increase in petrol cost at the pump.

To offset the fall in GDP because of oil price decreases the government is focusing on a project 2020 Vision (superseded to an extent by one to 2040) to identify areas of the economy for expansion.

Manufacturing, is hoping to have an increase the GDP share from 10 to 15% with areas such as Sohar Port , Salalah FTZ and Ad Duqm port areas key to this. Transport and logistics making use of its excellent location close to major shipping lanes and a 100% increase in contribution to Oman’s GDP is hoped for by 2020. This is focused on Sohar Port in the north, Ad Duqm and Salalah ports south of Muscat and a delayed but vital rail project . Tourism has been a key part of the government’s move away from reliance on hydro-carbons. A 150% increase on the percentage of contribution to the economy by 2020 is hoped for. Major projects here are the expansion of Airports (part of the logistics thrust), redevelopment of Mutrah seafront, expansion of Ad Duqm as a leisure centre and increased focus on year-round tourism in Al Jabal Al Akhdar and in Salalah. Fishing is expected to more than double its catch from 200,000 tonnes to just under 500,000 with a number of new fishing harbours being constructed to support the increase. Mining and minerals are also expected to grow, from a relatively low base with a possible doubling (20% increase a year) hoped for by 2020.

The challenges in achieving a rise in GDP remain irrespective of any change in oil revenues. With the Omani Rial fixed to the USDollar and with the Oman economy in a completely different economic situation to the US economy the government has little room to maneuver following the December 14^th increase in interest rates in the USA and possible further rate increases in 2017. With the British Pound and Euro near 10 year lows (falls of up to 35 & 40%) against the Dollar the cost of exports from Oman, which includes inbound tourism, have increased price disadvantages. The rapidly increasing numbers of potential national worker in Oman, a combination of natural population growth and increasing numbers of females who intend to work, is creating pressure on the government to improve employment opportunities. This is against a continuing and rapid increase in foreign workers who compete at every level with the local work force.