A Quarterly Newsletter from the UAE and Oman member firms of the PKF International Ltd. network

VOL 19, Issue 3 July 2017

OMAN UPDATE

BUDGET 2017

The Oman Budget 2017 has continued with the cautious approach adopted in the past two years due to unprecedented low oil prices, and has focused on diversification, privatisation and revitalising of the Oman economy. The budget proposes measures to enhance the non-oil revenues through raising of corporate taxes, limiting tax exemptions, strengthening tax collection procedures, effective monitoring of custom duty compliance and exemptions, and revision in power tariffs. Whilst the austerity measures will continue and subsidies would be further reviewed and gradually reduced, the funding would only be channelled into projects critical for Oman’s non-oil sectors. The authorities in Oman have shown maturity in cutting off unproductive expenditures only and for choosing to fund the deficit mainly through borrowings in international markets, so as to keep the economic momentum going rather than stopping the vital infrastructure projects. The government authorities have also launched the massive ‘Tanfeedh’ programme for enhancing economic diversification, boosting capital investment and economic growth, and providing employment opportunities for citizens. Tanfeedh has initially identified three major thrust areas viz., Tourism, Logistics and Manufacturing.

The total Budgetary revenues are estimated to marginally increase to OMR 8.7 billion, of which oil and gas revenues constitute 70%. Despite the significant constraints on budget revenues, the budget expenditures have only been marginally reduced by 2% to 11.7 billion. The Budget focuses on curtailing non-essential expenditures and rationalising costs, to ensure that the cuts in welfare costs like Health, Education, Housing, Social Security are limited, and funding to critical development and diversification projects continue. The outlays on defence and security at OMR 3.3 billion, and ministries and government units at OMR 2.2 billion constitute almost 28% and 19% respectively of total budgeted expenditure. The expenditure of OMR 1.89 billion on oil and gas production constitutes about 36% of oil and gas revenues. Recruitment in the public sector would be very limited, and private sector is expected to create job opportunities for Omani citizens in investment projects. The Budget focuses on enhancing public private partnerships and privatisation programmes to implement more investment projects and increase private sector initiatives. Development expenditure has been marginally increased from 2016 levels, to OMR 1.35 billion, in spite of revenue constraints.

The Budget deficit projected at OMR 3 billion is substantially lower than the actual deficit of about OMR 5.3 billion for 2016, and constitutes 35% of budget revenues and about 12% of estimated Gross Domestic Product (GDP). The Budget deficit is planned to be financed 84% through foreign and domestic borrowings, and balance by drawing from strategic reserves. Consequently, the government debt is expected to further increase from the present 29% of GDP (approximately), resulting in substantial increase in the interest burden in 2017. The Tanfeedh change programme, by bringing together the government ministers, officials, private corporates and SMEs on one platform, is critical to diversifying the Oman economy from oil and gas, and assisting the country to tide over the challenges posed by low oil prices.

(This article is compiled by Mr. Zarir Patwa, a Partner in PKF L.L.C., the PKF member firm in the Sultanate of Oman)