Modest fiscal surplus buoys outlook for Oman’s public finances

A relatively small, but symbolically significant, fiscal surplus achieved by Oman for the first four months of this year – the outcome of austerity measures adopted by the government in response to weak oil prices and the pandemic -- has lifted the outlook for the Sultanate’s public finances for the remainder of the year. Figures published by the National Centre for Statistics and Information (NCSI) earlier this week indicate that Oman registered a surplus of RO 134.2 million for the January – April period of 2020. This compares with a deficit of RO 132.2 million for the corresponding period of 2019. The uptick has been attributed not only to gradually improving oil prices but also to a slate of measures implemented by the government to offset the effects of the burgeoning global economic downturn on its finances. “The overall improvement and resultant surplus was large because of an increase in oil revenue, cost controls adopted in civil and defense ministries and also because of privatisation proceeds,” said Loai Bataineh (pictured), Chief Executive Officer - Ubhar Capital SAOC, a local investment firm. After sliding to multi-year lows, Oman’s crude oil benchmark has remained on the uptrend along with major international benchmarks since May when a global oil production cut, strongly supported by non-Opec Oman, came into effect.  Oman Crude Oil Futures Contract settled at $42.99 a barrel in trading on the Dubai Mercantile Exchange (DME) on Wednesday. Net oil revenues were marginal up 3.2 per cent to RO 2.133 billion for the Jan – Apr period, up from RO 2.068 billion for the same period of last year.  But gas revenues were down a hefty 22.7 per cent to RO 483.8 million this year, down from RO 625.6 million for the corresponding period of 2019. On the expenditure side, defence and security establishments reported a 17.2 per cent decline in spending during the period, while investment expenditure fell 24.5 per cent.  Development expenditure by civil ministers was also nearly halved to RO 171.2 million. “Indeed, cost-cutting has helped a great deal in reducing the expenditure, which has aided in reporting a surplus over the last couple of months,” said Bataineh.  “As per the government’s earlier announcements, we expect such cost rationalisation to continue in the coming period, which will aid in reporting better numbers in the coming period.” But the interest burden on debt racked up by the government to help balance budgets in recent years will continue to weigh negatively on public finances, he warned. “Debt raised locally and internationally by the Sultanate in the last couple of years has resulted in an increase in interest on loans. It is estimated to remain higher in the coming 1-2 years but as soon as the loan taken on a higher rate matures and is replaced with a lower rate, we will see a gradual decline in interest,” he explained. Interest on loans surged 62.7 per cent to RO 309.6 million during the Jan – Apr period of this year, up from RO 190.3 million for the same period of 2019. “However, interest rates globally are expected to remain lower because of COVI9-19 and the economic stimulus and quantitative easing measures. This will aid the Sultanate in lowering their cost of borrowings,” the banker added.