Having garnered multiple outlook upgrades from international ratings agencies, as well as upbeat assessments from multilateral institutions, the Sultanate of Oman says it will continue to be guided by fiscal policies that have successfully helped pivot the country on the path to economic recovery.
That commitment was reaffirmed by a key executive of the Ministry of Finance (MoF) who noted that the Omani government will continue to stay the course in maintaining fiscal discipline and public finance reform as stipulated in its Medium Term Fiscal Plan. The Plan enshrines, among other things, a primary goal to achieve a balanced budget by 2025.
“In the coming years, we remain firmly committed to our fiscal consolidation and reform strategies and the progress made on the global economic recovery,” said Shaima al Habsi (pictured), Investor Relations & Credit Ratings Agencies – Debt Management Office, Ministry of Finance.
“Oman's own national vaccination progress and reopening of the country gives us the confidence in both our medium and long term growth prospects. Our vision for the upcoming years is supported by our enhanced governance and commitment to transparency. We are committed to building upon fiscal reforms achieved to reducing our debt and to ensuring a stable and predictable macroeconomic environment.”
Speaking at an investor roadshow held in Muscat recently, Shaima said a multi-pronged reform agenda being implemented by the government is underpinned by a commitment to fiscal sustainability and prudent debt management, a comprehensive plan to diversify the economy, a robust external position, and a stable political environment.
These objectives, she said, are supported by, among other factors, a favourable geographic location and higher oil prices – “pillars of strength” that have been positively recognized by international credit rating agencies in recent months.
“These (outlook) statements recognize Oman’s reform momentum towards expectations for a surplus and an improved macroeconomic backdrop,” said Shaima. “Fitch recently upgraded Oman's credit rating to BB from BB- - the first upgrade since 2017, reflecting significant improvements in Oman's fiscal metrics, a decrease in external financing pressures and ongoing efforts to public finance reforms,” she said.
Just earlier, S&P upgraded Oman’s ratings to BB- from B+ citing higher oil prices, rising hydrocarbon production and implementation of a reform programme as factors that are improving Oman's fiscal and external trajectory. These updated rating opinions validate the seriousness of the reform programme underway and the results already achieved, the official noted.
The primary objective of Oman’s fiscal consolidation measures, Shaima pointed out, is to achieve an overall primary balance by 2025 and steer general government debt on a steady downward path. “It is important to point out that the fiscal adjustments from expenditure efficiencies and rationalizations includes wage bill restraint, subsidy reform, and budget control,” she stressed.
Commenting on revenue growth, the official referred to the government’s continued efforts to boost non-oil earnings. “We now have a meaningful contribution from VAT collections and are looking at options for increasing the effectiveness of tax collection. While oil revenues has been the main driver of Oman's fiscal revenue for years, it has been increasingly oriented towards diversifying its sources of revenue and boosting non-oil revenues. This will be supported by the government's efforts to diversify the economy, which we believe will lead to an increase in tax and fees collection.”
With regard to fiscal discipline, Shaima cited the example of the public wage bill, which has been contained, resulting in a lower allocation for this item in the 2022 budget than it was in 2015.
Reforms targeting electricity and water subsidies will proceed across a 10-year horizon, which the official described as a “the right balance between responding to global inflationary pressures with the ultimate objective of better targeted social spending”.
Reviewing Oman’s growth prospects, the official said that Oman’s suggestion pandemic mitigation strategy has enabled economic activity to return to near full normality.
Total expenditures, on the other hand, increased by around 9 per cent year on year as of June-end 2022, according to Shaima. Civil expenditures increased by around 31%, largely on the back of an increase in subsidies and transfers and upstream gas operations. Meanwhile, civil ministries remain somewhat stable year on year owning to expenditure control efforts as per the government’s reform programme.
In comparison, total revenues increased by around 54 per cent by the end of June 2022, as compared to the previous year with increases seen in each of the line items, but largely supported by an increase in oil and gas revenues, she added.
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