The Oman government has issued a bold, courageous and growth oriented budget for 2015 against the backdrop of a 48% slump in the price of oil, which constitutes about 66% of the total budgeted revenues. Oman’s macro-economic and financial stability, commitment to execution of major infrastructure projects and better growth expectations in non-oil sectors are key factors helping the government to overcome the difficult situation posed by the steep decline in oil prices. Encouragingly, the Oman economy is expected to grow at an acceptable rate of 5% during 2015 against estimated GDP growth of 4.4% in 2014.
The Oman economy is expected to grow at a rate of 5% during 2015 as against estimated GDP growth of 4.4% in 2014.
Total budgetary revenues are estimated to decrease marginally by 0.9% to OMR 11.6 billion, of which the oil and gas revenues are estimated at OMR 9.16 billion at an assumed average oil price of US $ 75 per barrel and average daily oil production of 980,000 barrels per day. Oil and gas revenues comprise 79% of total revenues and current/ capital account revenues account for the balance 21% of the revenues. The decline in oil and gas revenues has been compensated by projected 18.5% increase in current/capital account revenues to OMR 2.4 billion.
The budget estimates that the total tax and fees revenues will increase by 28.5% through expected increase in revenues from non-Omani labour licenses, increase in taxation and custom duties, increase in passport and immigration fees, etc.
Total budgetary expenditure has increased by 4.44% over the previous year, to OMR 14.1 billion. The total current account expenditure estimated at OMR 9.6 billion, accounts for about 68% of the total public expenditure, whereas the investment expenditure, estimated at OMR 4.5 billion, accounts for about 32% of the overall budgetary expenditure. The current account expenditure is expected to increase by 10.3% to OMR 9.6 billion, with major allocation going towards civil ministries expenditure of OMR 5.16 billion and defense expenditure of OMR 3.8 billion.
The key investment projects expected to be implemented during 2015 are:
- Sohar – Buraimi Railway Line project.
- Various major Road projects.
- Fishery Industries Complex project in Duqm.
- Investment projects of Oman Foods Investment, Holding Company in the fields of poultry, meat, dairy products, etc.
- Waste water plants and networks.
- Construction of Hotels and Oman Convention and Exhibition Centre project.
- New residential City for Wilayat of Liwa.
The investment projects that the government plans to implement are expected to stimulate private sector activity and generate significant local employment opportunities. The active promotion of in-country value in the oil and gas sector is expected to provide enormous opportunities for local businesses and SMEs.
The budget deficit projected at OMR 2.5 billion, constitutes 21.5% of the total budgeted revenues and about 8% of the Gross Domestic Product (GDP). The budget deficit is expected to increase substantially, by almost 39% to OMR 2.5 billion compared to the previous year’s budget deficit of OMR 1.8 billion. The budget deficit is planned to be financed 40% through financial surpluses, while 28% would be withdrawn from reserve funds, and the balance 32% of would be covered by foreign and domestic borrowings and grants. In view of the relatively low debt-to-GDP ratio of 6.9% in 2013, the government has reasonable scope to raise further debt to finance the execution of the infrastructure projects. Oman also has adequate reserves that would serve as a buffer to insulate the country from further oil price shocks.
The investment projects are expected to stimulate private sector activity and generate significant local employment opportunities.
In the face of global challenging economic situation and uncertainties surrounding the oil prices, the government has shown determination and commitment with the announcement of the bold Budget for 2015. However, should the weakness in oil prices persist for a prolonged period, this could prove challenging in future, and the government would have to resort to alternative strategies and stringent measures to address the situation.
(This article is compiled by Mr. Zarir Patwa, a Partner in PKF L.L.C., the PKF member firm in the Sultanate of Oman.)