All expectations point to the Sultanate of Oman’s financial recovery and posting positive results this year with the introduction of economic and fiscal reforms, following the negative impact caused by the Corona pandemic and a steep drop in oil prices during the past years.
The Omani government decided to take measures last year to improve its financial conditions. In order to boost its revenues, it decided to impose a value-added tax of 5 percent in April of 2021.
It then went to the International Monetary Fund in June and requested technical assistance in order to develop a medium-term debt strategy and strengthen its fiscal framework.
The Gulf state had begun to record a rise in its debt-to-GDP ratio since the collapse of oil prices in 2014, and this ratio jumped from about 15 percent in 2015 to more than 80 percent recently.
Oman’s 2022 budget: Lowest deficit in 11 years
The Sultanate’s announcement of its budget figures for the year 2022 confirms its determination to face financial and economic challenges. This budget represents the second year of the tenth five-year development plan (2021-2025), which paves the way for the implementation of the development goals of Oman Vision 2040.
The budget expects the lowest deficit recorded in 11 years, and a debt-to-output ratio of 75 percent, which is 86 percent lower than what officials expected in previous targets.
Observers expect the general budget deficit this year will reach 5% of the GDP, as it is targeted to reach 1.5 billion riyals (about $4 billion), representing about 15% of the total revenues, estimated at 10.58 billion riyals, compared to expenditures of 12 .13 billion riyals.
That is, it will remain within the limits of the target in the medium-term financial plan launched by the Sultanate in 2020 to reform its finances.
The expected deficit is also 30% less than the 2021 budget estimates, which were targeting a deficit of 2.24 billion riyals.
Calculating a barrel of oil at $50
Oman has set its estimates for the 2022 budget on the basis of the price of a barrel of oil at $50, which means that this Gulf country will benefit, like other oil-exporting countries, from higher oil prices and an increase in its production, which will help achieve a balanced budget and drive real GDP growth.
In the new budget, oil and gas revenues represent 68 percent of total revenues (compared to 63 percent in 2021), while non-oil revenues represent 32 percent.
According to the National Center for Statistics and Information in Oman, oil production rose to 971,200 barrels per day at the end of December of last year, from 950,700 barrels per day until the end of December 2020.
PWC: Break-even price: $67
According to a report by PricewaterhouseCoopers (PWC) on the Sultanate’s budget, the calculation of the expected revenue figures based on an assumed oil price of $50 was higher than what was calculated last year at $45.
“What observers expect about the average oil price is conservative given that the current oil prices are relatively higher. The financial breakeven price of oil in the Sultanate of Oman needed to balance its budget for 2022 will be $67 per barrel, compared to $74 per barrel in 2021,” the report said.
This means that the fiscal deficit will decline significantly, especially since the price of a barrel of oil has recently approached the $100 mark.
Optimism based on the improvement of Oman’s economy
The year 2021 provided a number of positives that officials in the Sultanate seem to have taken into account when preparing their ambitious budget for 2022, most notably:
– Oman’s actual revenues for 2021 exceeded budget expectations last year, and this contributes to strengthening the Sultanate’s efforts to meet its medium-term financial plan (2020-2024) to reduce its deficit.
– The introduction of the value-added tax allowed the Sultanate of Oman to include a new revenue stream in the 2022 budget and start reaping the benefits of implementing the new financial policies.
– The Sultanate’s credit outlook has improved across the three major agencies. Standard & Poor’s revised its outlook for the Sultanate from stable to positive, with an affirmation of the credit rating at B+/B. Meanwhile, Fitch Ratings Agency revised its future outlook for the Sultanate of Oman to “stable” from “negative” with an affirmation of the long-term credit rating at BB-. And Moody’s revised the outlook to “stable” from “negative” and kept its credit rating at Ba3.
All these indicators confirm that the economy in the Sultanate of Oman is proceeding as planned by officials within the 2040 vision, which aims to diversify the economy towards achieving sustainable growth that contributes to turning deficits into surpluses.