Complex Made Simple

Oman’s budget, its deficit, and where the spending will go

Oman has approved its annual budget for 2022, allocating 12.13 billion Omani riyals ($31.5bn) for spending, with a focus on basic public services, from health to social support, stimulating investment

Oman's budget deficit in 2022 is expected to reach an estimated 1.5bn riyals ($3.9 bn) Oman's economy will recover in 2021 from both COVID-19 and the collapse in oil prices in 2020 Oman has adopted various fiscal measures over the past year

Oman has approved its annual budget for 2022, allocating 12.13 billion Omani riyals ($31.5bn) for spending, with a focus on basic public services, from health to social support, stimulating investment.

This year’s budget, which is an increase on the previous year’s budget of 12.167bn riyals ($31.6 bn), is based on an oil price assumption of $50 per barrel, the state-run Oman News Agency (ONA) reported on Sunday.

The government expects its revenue to reach 10.58bn riyals ($27.5 bn) in 2022, with more than half (68%) coming from oil and gas revenue of 7.24bn riyals ($18.81 bn), ONA reported. Non-oil revenue is estimated to reach 3.34bn riyals ($8.7 bn), or 32% of total government revenue.

Oman’s budget deficit in 2022 is expected to reach an estimated 1.5bn riyals ($3.9 bn), or 5% of GDP, with the estimated deficit in line with the country’s medium-term financial plan, launched by the Gulf state last year to fix its finances.

The sultanate will finance its budget deficit from external and domestic borrowing, as well as plugging the remaining gap through drawing on its reserves.

Sultan bin Salem Al Habsi, Oman’s finance minister, told ONA: “This represents the first phase within Oman Vision 2040 that is aimed at achieving financial sustainability and stimulating economic diversification.”

Oman’s budget deficit reached an estimated 1.2bn riyals ($3.12 bn) in 2021, or 3.8% of GDP.

Oman, a relatively small crude producer compared to its Gulf neighbors, is more sensitive to oil price swings. However, higher oil prices in 2021, along with fiscal reforms, are expected to narrow government deficits and contain debt levels over the next few years.

Last month, Fitch Ratings revised Oman’s outlook to stable from negative following improvements in key fiscal metrics, including government debt, GDP, and the budget deficit.

The agency also affirmed the sovereign’s long-term foreign and local currency Issuer Default Ratings (IDR) at BB minus. The BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time, with financial flexibility still in place.

The revision in Oman’s outlook was driven by higher oil prices and fiscal reforms in the country and a lessening of external financing pressures relative to recent years, even as external funding needs remain high, Fitch said.

Oman has adopted various fiscal measures over the past year to support the economy during the pandemic, including interest-free emergency loans, tax, and fee reductions and waivers, the flexibility to pay taxes in installments, and a Job Security Fund to support citizens who lost their jobs.

Oman’s economy is set to recover in 2021 from the dual impact of the Covid-19 pandemic and the collapse in oil prices in 2020, with the economy projected to grow by 2.5% after a contraction of 2.8% in 2020, according to the International Monetary Fund.

Smallest deficit since 2014

This year, Oman is expected to record the smallest annual budget deficit since 2014 thanks to the government’s Medium-Term Fiscal Plan, according to the Ministry of Finance (MoF).

In a statement to Oman News Agency, Al Habsi said that preliminary data points to the fact that the state budget 2022 tends to register the lowest deficit since 2014, despite the fluctuation in oil prices over the past period.

The $3.12 bn deficit for Oman’s 2022 budget is about 15% of total revenues, which falls within the range of deficits estimated in the Medium Term Fiscal Plan (MTFP).

“This accomplishment is attributed to the government’s resolve to stick to the MTFP, both at the level of revenues and spending, with the overall aim of meeting the main objectives and increasing the confidence of lenders and credit rating agencies,” Habsi said.

A major part of the deficit in 2022 will be financed from external and internal borrowing, while the rest of the deficit, around $1.04 bn, will be funded through withdrawal from the state’s reserves.

Habsi said the 2022 budget was drafted in a manner that conforms with the targets and pillars of the 10th Five Year Development Plan (2021-2025), the first leg in Oman Vision 2040.

In a preliminary 2022 budget report on December 30, Oman’s Ministry of Finance said the priorities for spending will be on basic services such as education, health, housing, and social care, improving the business environment, and attracting more investments. The minister affirmed that and added the need to maintain procedures and instruments aimed at improving the business climate and expanding partnership projects undertaken with the private sector, he added.

Habsi pointed out that, in case oil prices go up beyond the price endorsed in the budget, priority will be given to using the surplus to cut down the deficit and repay the installments of loans.