Welfare gets big push in budget

His Majesty Sultan Qaboos on Monday ratified Budget 2018. With several measures to boost the economy and enhance the welfare of citizens, Oman’s Ministry of Finance unveiled the Budget 2018 with a public spending outlay of RO 12.5 billion on Monday. While the budget forecasts over three per cent GDP growth in the year ahead, it targets a revenue of RO 9.5 billion, an increase of three per cent, or RO 800 million, over fiscal year 2017 and a deficit of RO 3 billion. Oil sector will account for 70 per cent of the total revenue, while the remaining 30 per cent is expected to come from non-oil sectors. This will consist of RO 6.78 billion from oil and gas, representing 70 per cent, and RO 2.72 billion, or 30 per cent, from non-oil sector. The deficit, which is 10 per cent of the GDP, will be financed through internal and external borrowings. “The 2018 Budget includes a set of stimulus and precautionary measures with respect to revenues and spending,” said a statement from the Ministry of Finance. The budget is keen to maintain the consistency and harmonisation between various allocations and general objectives of the Ninth Five-Year Development Plan as well as the initiatives or projects of Tanfeedh. “This shall lead to achieving the objectives of Oman Vision 2020, and paving the way for Oman Vision 2040,” said the statement. It said, “Oman has made remarkable achievements in areas such as health, education, housing, basic services and infrastructure, which uplifted the citizens’ standards of living to higher levels. Hence, the budget quest to maintain the achievements.” Education, health, housing and social welfare have been allocated with the lion’s share of 38 per cent, or RO 3.8 billion. An amount of RO 80 million has been allocated to continue the Social Housing Scheme and Housing Aid Programme for eligible citizens, as well as housing loans provided by Oman Housing Bank. Moreover, the appropriations of housing and development loans amount to about RO 30 million. The current expenditures of ministries and government units are estimated at RO 4.35 billion, down by 1 per cent compared with the budget approved for 2017. The current expenditures include salaries, annual allowance and entitlements of the employees of RO 3.3 billion and also include operating expenses of RO 0.6 billion. The salaries, annual allowance and entitlements account for 75 per cent of total current expenditures of ministries and government units. As for the fuel subsidy, the statement said, “In the implementation of the decision made by the Council of Ministers with respect to fuel subsidy for eligible citizens, the required appropriations shall be allocated to cover the subsidy in accordance with the approved mechanisms.” The appropriations allocated for subsidies are estimated at RO 725 million, higher than the 2017 approved budget by RO 330 million, which is equivalent to 84 per cent. “This is due to the increases in electricity subsidy to meet the growth in consumption. This includes subsidies for cooking gas, housing and development loans, and operational support to state-owned-enterprises,” the statement said. The government gives special emphasis to the training of Omani job-seekers in order to enhance their skills and capacities so that they can join the labour market. These training programmes will adopt the latest global approaches for training and on-job training. The first batch, consisting of 4,300 trainees, are currently receiving training. Various companies have been coordinated with to employ these trainees on completion of their training. In this respect, the National Training Fund has been established and RO 62 million allocated to cover the cost of the training programmes. Spending on the implementation of development projects is estimated at RO 1.2 billion, in 2018 budget, representing the estimated amount to be paid during the year as per the actual work in progress for the projects. Several state-owned-enterprises are currently working towards implementing a number of projects during 2018, estimated to cost RO 3 billion. “This will give a further boost to economic activity, accelerate economic growth and create more jobs,” adds the statement. SAMUEL KUTTY FULL STATEMENT Economic Developments: 1 National Economy: In the last two years, since the beginning of the Ninth Five-Year Development Plan, the national economy proved to be able to maintain positive growth rates. This is despite the challenges arising from lower oil prices. As oil prices remained low in 2015-2016, oil activities contribution to GDP decreased by 21 per cent at current prices, whereas non-oil activities contribution increased by 2.6 per cent over the same period. This pushed GDP to grow by 5.4 per cent at constant prices in 2016. Gross capital formation data for the period (2014-2017) shows increase in private sector contribution to the implementation of investment schemes, rising to 52 per cent and 60 per cent in 2014 and 2017, respectively, as illustrated in the following table: According to the growth trends in 2017, GDP rose in the first half of 2017 by 12.8 per cent at current prices, as compared with the first half of 2016. Non-oil activities grew by 3.8 per cent over the same period, while oil activities jumped by 34.9 per cent during the first half of 2017 as compared with the first half of 2016. The growth rate is projected to be positive at a rate of at least 3 per cent in 2018. This is driven by oil prices recovery, and efforts to diversify the economy and improve investment climate. Budget Objectives: The State’s General Budget is an annual executive financial programme for the Five-Year Development Plan. Therefore, the preparation of revenue and expenditure estimates, and deficit projections in the 2018 Budget, seeks to achieve the following objectives: 1 Maintaining Fiscal and Economic Stability: Fiscal sustainability and mitigation of potential risks are the main objectives that the 2018 Budget strives to achieve. In this respect, the revenues and spending of 2018 Budget have been estimated to achieve the following: •Reducing budget deficit to a sustainable level of no more than 10 per cent of GDP. •To keep reducing public spending, particularly current spending to a sustainable level of 40 - 45 per cent of GDP. •To continue bring down breakeven point/price over the coming years. •Revitalising non-oil revenues and enhancing their contributions to overall government revenues by no less than 30 per cent of total revenues. •Limiting the growth of public debt, and reduce it over the coming years. •Maintaining domestic liquidity and focusing on the external borrowing to finance budget deficit. 2-Raising Economic Growth Rate: Public spending is one of the main drivers of economic growth and employment. In this regard, the Budget sets out actions the government will take to: •Achieve economic growth by no less than 3 per cent, and control inflation rate so as to maintain per-capita income level. •Provide allocations required to government units that help, directly and indirectly, to achieve targeted economic growth for 2018. •Allocate appropriations required for implementing the initiatives of Tanfeedh, pertaining to the improvement of investment climate, enhancement of the private sector’s role, and boosting investment rates in GDP. •Maintain adequate level of public investment, with the aim to enhance economic diversification, increase employment rates, and strengthen social development. •Enhance public-private partnership (PPP) in order to accelerate implementing more investment projects and private sector initiatives. This is to be realised while maintaining fiscal balance at macroeconomic level. •Give special attention to allocations for the maintenance of assets, facilities, and infrastructure in order to ensure the effectiveness and sustainability of the development projects already accomplished. •Support Small and Medium Enterprises (SMEs) by allocating some of the government projects to SMEs. In addition to, speed up the payments of SMEs and continue providing loans to the SMEs through Al Raffd Fund and Oman Development Bank. •Support efforts to the development of renewable energy sources, and ‘Sahim’, which is a renewable energy initiative. This initiative aims at encouraging citizens to make use of solar panels to generate power, and feed electricity grid with electricity surplus generated from the solar panels. 3 Stability of Citizens’ Standards of Living Oman has made remarkable achievements in areas such as health, education, housing, basic services and infrastructure, which uplifted the citizens’ standards of living to higher levels. Hence, the budget quest to maintain the achievements through the following: Education, Health and Social Welfare Sectors: The allocations approved for these sectors in 2018 Budget estimated at RO (3880) million. This represents the lion portion of the budget due to significant importance of the sectors for the citizens. The development of public spending on the aforesaid vital sectors, as follows: Recruitment: In light of the decision made by the Council of Ministers, upon the Royal Directives, to provide 25000 job opportunities for job seekers, an executive programme has been adopted to implement the decision. The programme will run until the first half of 2018. Until the end of December 2017, around 4800 job opportunities have been provided in the private sector. The employment in public sector shall only be based on a needs basis, and in line with the budget situation. National Training Fund: The Government gives special emphasis to the training of Omani job-seekers in order to enhance their skills and capacities so that they can join labour market. In this respect, the National Training Fund has been established, and an amount of RO 62 million has been allocated to cover the cost of training programmes. These training programmes are to adopt the latest global approaches for training and on-job training. The Fund currently trains the first batch consisting of 4300 trainees; and various companies have been coordinated with to employ these trainees once they finish the training. Housing Aid, Social Housing Scheme, and Housing loans: An amount of RO 80 million allocated to continue to implement the Social Housing Scheme and Housing Aid Programme for eligible citizens, as well as housing loans provided by Oman Housing Bank. Moreover, the appropriations of housing and development loans amount to about RO 30 million. Fuel subsidy: In the implementation of the decision made by the Council of Ministers with respect to fuel subsidy for eligible citizens, the required appropriations shall be allocated to cover the subsidy in accordance with the approved mechanisms. Supporting SMEs: Provide allocations required to implement the catalytic initiatives conducive to the development and strengthening the role of SMEs as being one of the most sectors the economy relies on to create jobs for Omani youths. This is in addition to contribute towards the utilisation of natural resources, maximising economic value added and economic diversification. Main Features of the 2018 Budget: A-Preliminary results of 2017 Budget: 1-Public Revenues: The (preliminary) actual estimates for FY 2017 are as follows: The budgeted non-oil revenue target was not realised, as some revenue-producing activities have been affected by the decline of oil prices, such as government investments and income tax collected from corporates working in oil sector. In addition to delayed the implementation of some measures taken to revitalise the revenues of these activities. The following chart shows a decline in the average price of oil during the period (2016 - 2018): 2-Public Spending: According to the (preliminary) actual estimates, overall public spending totalled RO 12.7 billion in 2017 compared to RO 11.7 billion estimated in the budget, up by 9 per cent. This is attributed to the rise in investment spending over development projects, oil and gas sector projects and electricity sector subsidy; as well as funding a number of budget items to meet necessary and urgent needs. In addition to high cost of public debt service as a result of increased borrowing. Despite the fact that the actual spending is higher than the estimated spending, the actual spending is, however, lower than actual spending recorded in 2016, by RO 208 million i.e. (2 per cent). Public revenues, spending and estimated deficit of 2018 Budget, are illustrated as follows: 1-Public Revenues: Aggregate revenues are estimated at RO (9.5) billion, increasing by (3 per cent) as compared to expected actual revenues for 2017. These revenues consist of oil and gas revenue of RO (6.78) billion, representing (70 per cent) of total revenues. Non-oil revenues are estimated at RO (2.72) billion i.e. (30 per cent) of total revenues. The following considerations have been taken into account during the preparation process of revenue estimates: Oman’s commitment to cut oil production in line with OPEC’s decision to reduce production volumes. Gas revenues from Khazzan-Makarem gas field. Selective tax revenues (After implementation) Revenues generated from Privatisation Scheme. Improve efficiency of tax and fees collection. Expanding in the provision of preferential services. 2-Public Spending: Total public spending is budgeted at about RO 12.5 billion, increasing by RO 800 million i.e. 7 per cent compared with the estimated spending of 2017 budget. The outcomes of measures taken to cut spending, have taken into account the following: Current Expenditures of Ministries and Government Units: These expenditures are estimated at RO 4.35 billion, down by 1 per cent as compared to budget approved for 2017. The current expenditures include salaries, annual allowance and entitlements of the employees of RO 3.3 billion; and also include operating expenses of RO 0.6 billion. The salaries, annual allowance and entitlements account for 75 per cent of total current expenditures of ministries and government units. Investment Expenditures: As for investment expenditures, the work on a number of strategic projects is under completion as follows: The new Muscat International Airport to operate in 2018. This airport, as one of the strategic projects, will bring about a paradigm shift within tourism and logistics sectors. The first phase of Batinah Coastal Road project, including the compensation for the people affected by the project, is completed. Batinah Expressway project is ongoing. Completion of Bidbid-Sur dual carriageway project, including four tunnels in Wadi Al Uqq. The implementation of the 240-km Adam-Thamrait road dualisation project. The current projects of roads shall contribute to achieve Oman Logistics Strategy 2040 (SOLS 2040), which seeks to enhance the contribution of logistic sector to GDP. Liwa Housing project is underway. Water networks being implemented in various wilayats. In partnership with the private sector, agreements have been signed to construct three new hospitals, namely Sultan Qaboos Hospital in Salalah, Al Suwaiq Hospital and Khasab Hospital. Provide allocations for the scholarships and grants for Omani students. Provision of allocations for a number of new schools. As For investment projects in Duqm, some projects have commenced such as Duqm Refinery, crude oil storage terminal, Karwa Motors, Sino-Omani Industrial City and Sebacic Oman Bio-Refinery for Production of Derivatives of Castor Oil. This is in addition to a number of real estate development projects, including little India Tourism Complex. Spending, on the implementation of development projects, is estimated at RO 1.2 billion in 2018 Budget, representing the estimated amount to be paid during the year as per the actual work in progress for the projects. Spending on development projects has been considered not to be cut. This is to ensure the completion of all ongoing projects without delay, and make timely payments. Several state-owned-enterprises (SOEs) currently working towards implementing a number of projects during 2018, estimated to cost RO 3 billion. This will give a further boost to economic activity, accelerate economic growth and create more jobs. Oil and Gas Production Expenditures: These expenditures are estimated at RO 2.1 billion, up by 15 per cent compared with 2017 budget estimates. This includes the cost of oil and gas production, and expenses required to maintain the future production levels and increase oil reserves. Subsidies: The appropriations allocated for subsidies are estimated at RO 725 million, higher than the 2017 approved budget by RO 330 million i.e. 84 per cent. This is due to the increases in electricity subsidy to meet the growth in consumption. This includes subsidies for cooking gas, housing and development loans, and operational support to SOEs. Other Expenditures: These expenditures include: public debt service, development expenses of SOEs, and government cash contributions to the capitals of local and international companies and institutions. Allocations for such expenditures are estimated at RO 685 million, RO 140 million higher than 2017 budget estimates. This is due to the increasing cost of public debt service by RO 215 million; and rising of development expenditures of SOEs by nearly RO 25 million. While government cash contributions, to the capitals of local and international companies and institutions, dropped by RO 100 million. 3 Deficit: According to the (preliminary) final accounts, the actual fiscal deficit for FY 2017 is projected to be around RO 3.5 billion. While the budget deficit for FY 2018 is estimated at RO 3 billion i.e. 10 per cent of GDP. In comparing the deficit during the three years (2016, 2017 and 2018), it’s clear that the deficit is declining. The estimated deficit for FY 2018 is lower than actual deficit of 2016 by RO 2.3 billion. 4 Deficit Financing: Despite the uncertainty over debt market caused by unfavourable set of global economic conditions, the government was, however, able to finance the approved 2017 budget spending by borrowing mainly from external sources. The government relied upon borrowing from external sources to avoid crowding out the private sector in meeting its financing needs, as well as to enhance foreign currency cash flows and reserves. In 2017, an international bonds worth RO 1.9 billion, and Islamic bonds (Sukuk) of RO 800 million, have been issued. The government has likewise obtained commercial loans valued at RO 1.4 billion. Subsequently, domestic and foreign borrowing accounted for 90 per cent of total funding, while the rest i.e. 10 per cent was covered by drawing on reserves. 5 Fostering the Contribution of the Private Sector: The most important principles of the Ninth Five-Year Development Plan are developing the private sector and enhancing its role in the overall economic activity, and improving business environment and investment climate. According to this plan, the contribution of the private sector estimated at about 52 per cent of total investments. However, the private sector registered 60 per cent of total investments in 2016. This is as a result of activating a set of policies, including: A Improving Investment Climate and Business Environment by Removing Impediments to Doing Business: The government is taking measures to tackle the constraints hindering the competitiveness of Oman, including through developing the legislative framework. In this respect, the government is currently working towards enacting Foreign Investment Law, Public-Private Partnership (PPP) Law and Bankruptcy Law. Establishing a national office for competitiveness to monitor international indicators in order to improve the enablers required to raise the competitiveness of Oman. Provision of allocations for E-Government projects in order to enhance the performance of government units; and to ensure better services delivery, with the aim to engage the private sector in financing and implementing these services. B Promoting Public-Private Partnership (PPP): To enable the private sector to play a vital role in the implementation process of development plans, a set of initiatives have been introduced, as follows: First: Capacity-building and development of national competencies. Second: Enhancing business environment. Third: Developing the legal and institutional framework with respect to partnership projects: In this respect, a set of projects have been selected within the framework of Tanfeedh. These projects are chosen to stimulate five promising sectors which are manufacturing, logistics, tourism, fisheries and mining. The projects are proposed to be financed through innovative financing methods in partnership with the private sector. C Privatisation Scheme: Despite the financial and economic challenges posed by the decline of oil prices, affecting investment activities and capital markets in the region, the privatisation scheme is continued. This scheme is essential to promote and expand participation of the private sector in the economic activities. According to the scheme, six SOEs planned for privatisation during 2018. 6 National Programme For Enhancing Economic Diversification (Tanfeedh): The first stage of Tanfeedh included three key sectors which are manufacturing, tourism and logistics. In addition to supportive sectors namely finance and innovative financing, and employment and labour market. The Laps/workshops of the aforesaid programme have proposed 91 initiatives. The Implementation Support and Follow-Up Unit (ISFU) is currently supporting government units concerned to enable them to implement the initiatives on time. In regards to fisheries sector, the laps conducted during 2017 concluded with 91 initiatives and projects, included three activities such as aquaculture and fishing, value added industries and exports. The private sector expressed its willingness to finance these initiatives and projects by 93 per cent. It’s expected that such initiatives will help to raise the contribution of fisheries sector to GDP. Fourth: Fiscal consolidation and fiscal measures taken to address budget deficit: The government has taken a set of fiscal adjustment measures aiming at fiscal sustainability; and a gradual fiscal adjustment policy is pursued to avoid any negative consequences over economic and social aspects. The most important of these measures are as follows: 1-Revitalising Non-Oil Revenues: Amending Income Tax Law. Enhancing tax collections efficiency, and activating monitoring and follow-up measures. Introducing selective tax on certain commodities. Amending fees of licences of bringing foreign workers. Amending some fees of civil services. Amending rules and regulations pertaining to exemptions of tax and customs duties. Amending the regulations of lands allocation (land of commercial, tourism, industrial and agricultural use). Adjust fees of municipal services. 2-Rationalising Public Spending: Giving priority to the implementation of necessary projects that serve economic and social objectives. Postpone the implementation of unnecessary projects. Asserting that economic efficiency, in the provision of public services and commodities, must be a key standard. Such standard governs the preparation of annual budgets by ministries and government units. Raising the efficiency of administrative apparatus by expanding the use of technologies in government transactions/operations. Promoting the efficiency of state-owned enterprises in order to enhance their contributions to the economy. Stressing the importance of implementing sound corporate governance. Reviewing and rationalising government subsidy in order to direct such subsidy to needy/eligible citizens. Selling government assets, within privatisation scheme, notably those entail higher operating expenses or maintenance costs. Completing the process leading to enact a Public-Private Partnership (PPP) Law. To adhere to the approved budget allocations for the ministries and government units, and no additional allocations shall be approved. In case of any increase in oil revenues, the priority shall be given to reduce the accumulated deficit. Fifth: Fiscal planning and discipline: In view of the rapid growth in public spending over the last few years, and in order to achieve fiscal discipline and contain public spending within sustainable levels. In this respect, the government is carrying out the following: 1 Developing a Multi-Year Budget Framework (2018-2021). This is to include a medium-term estimate of revenues, expenditures, deficit/surplus and financing. 2 Capacity-building for tax and customs systems. 3 Completing the activation of a single account for the treasury in order to help ensure effective management of liquidity and cash flow. 4 Completing the application of programme and performance budget in FY 2018 to include 18 government units. 5 Completing the development plan for government investments performance. 6 Finalising the process of establishing a holding company for every sector in 2018 in order to maximise the benefits of government investments. 7 Supporting Public Debt Management Unit with resources and qualified staff to assume the tasks of planning, organising and managing government debt. Also, to be able to review all means and options related to public debt in light of developments in global markets and financial position. This is in addition to monitor local liquidity, sustainable debt level and relevant risks. 8 Striving to improve credit rating. Conclusion: Despite the continued economic challenges posed by geo-economic factors since mid-2014, the State’s Budget coincides with a gradual economic recovery. The Budget endeavours to achieve fiscal sustainability and sustainable growth. As a result of the oil prices decline since mid-2014, the government pursued a gradual fiscal adjustment policy to tackle the implications arising from sharp fall in revenues. This is to mitigate economic contraction. However, the government has taken into account, during budget process, the requirements of social and economic development. The Budget included a set of stimulus and precautionary measures with respect to revenues and spending. The Budget was keen to maintain the consistency and harmonisation between various allocations and general objectives of the Ninth Five-Year Development Plan, as well as the initiatives/projects of Tanfeedh. This shall lead to achieve the objectives of Oman Vision 2020, and pave the way for Oman Vision 2040 Lastly, the Ministry of Finance is honoured to extend its best wishes to His Majesty the Sultan Qaboos on the occasion of New Year 2018, supplicating to Almighty Allah to bestow upon His Majesty with good health and long life. The ministry also would like to congratulate the people of Oman on the New Year 2018.