Oman’s economic outlook, constrained by its annual budget deficit as well as sizable public debt, has brightened a couple of notches on account of a number of factors, notably buoyant international oil prices, burgeoning natural gas output, and an expanding non-oil revenue base.
The marker price of Oman Crude Oil Futures Contract (OQD) rose 55 cents a barrel to settle at $63.58 per barrel (for April 2021 delivery) on the Dubai Mercantile Exchange on Thursday.
It had last reached this value around January 23, 2020, more than 13 months ago.
Commenting on the improved outlook for the Omani economy, Fitch Solutions Group, an affiliate of Fitch Ratings, said: “We expect this increase in oil prices, alongside a rise in crude output as OPEC+ restrictions ease, will drive oil revenues up.
“Meanwhile we continue to expect gas revenues will receive a substantial boost from Phase Two of the Ghazeer field, part of Block 61 production, which our Oil & Gas team forecast will come on stream in 2021, raising total gas production by 6.3 per cent y-o-y.”
The Ghazeer field, which was initially expected to come into production in 2021, was brought into operation last October, adding 0.5 billion cubic feet (bcf) per day to Block 61’s output of 1 bcf/day.
At full capacity, total production capacity from Block 61, comprising both Khazzan and Ghazeer, climbs to 1.5 bcf a day and more than 65,000 barrels a day of associated condensate.
Further buoying the outlook for Oman’s fiscals is the introduction of value added tax (VAT) at the rate of five per cent starting in April – a measure that will boost non-revenues by around 20 per cent in 2021, said Fitch Solutions.
However, despite the uptick in oil and non-oil revenues, the Omani government is unlikely to ramp up spending in line with its pledge to reduce the budget deficit and rein in public debt, according to the London-based think-tank.
“We forecast growth in total government spending of just 2.6 per cent, driven by low current spending as per the Medium-Term Fiscal Plan (MTFP). The MTFP, released on November 2020, outlines the county’s plans to narrow its fiscal deficits over the next four years to a projected deficit of 2.0 per cent of GDP by 2024. We expect a large proportion of the consolidation this year will come from cuts to current expenditure, the largest component of expenditure, which we expect will remain broadly flat in 2021.
“Meanwhile, we expect capex expenditure will experience only a moderate increase from low 2020 levels, even despite favourable base effects and recommencing of major infrastructure projects that had been delayed by Covid-19,” Fitch Solutions stated.
The research agency cited “progress” achieved in the government’s efforts to narrow the country’s deficits through fiscal reforms and higher revenue projections.
This has “encouraged us to revise our forecast for public debt-to-GDP from 78.3 per cent to 76.8 per cent”, it noted.
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