The Omani economy is doing fine in the ongoing environment of continuing socioeconomic challenges. What’s more, multinational agencies are projecting improved performances in the medium-term for the sultanate on the assumption of stronger oil prices.
Also, the preliminary projections for 2018 budget assume stronger revenues, though with little change to the size of the budgetary deficit. However, higher economic growth should contribute to reducing the full impact from such a deficit.
Oil prices sank in mid-2014 on the back of strong supply in the global markets. A primary contributor was the boom in shale oil production in the US. Tech advances boosted US output from the US and thereby allowing for a reduction in production costs and helping with the feasibility to produce more.
Now, prices are undergoing steady increases thanks in part to efforts by Opec members to cut production. The same can be said of non-Opec countries such as Russia. Oil has been averaging $55 per barrel in recent months, a departure from the levels in mid-2014 and 2015.
Economic growth for Oman is expected to show improved numbers in 2018. The World Bank is projecting a real GDP growth level of 3.4 per cent in 2018 from the negligible levels in 2017. This should come about despite the possible rise of inflation rate, from 2 per cent in 2017 to 2.6 per cent.
Such inflationary pressures are expected on the back of higher growth rates. Another contributor to inflation relates to stronger economic activities brought about by the ongoing crisis with Qatar. The sultanate has demonstrated preparedness to enhance trade activities with Qatar via sea and air.
The International Monetary Fund is projecting a growth rate of 3.7 per cent in 2018. There is a consensus among international agencies about the economy putting in more than 3 per cent.
The projections for fiscal year 2018 suggest revenues of $24.7 billion and expenditure of $32.5 billion. This leaves behind a deficit of $7.8 billion. Make no mistake, the shortfall is sizeable by virtue of representing 24 per cent of total spending, and clearly not sustainable in the long-term.
Oman’s 2017 budget assumed expenditures and revenues of $30.1 billion and $22.4 billion, with a projected deficit of $7.7 billion.
The World Bank puts the fiscal deficit at 12.2 per cent of GDP in 2018 versus 13.5 per cent in 2017. Still, the IMF expects the deficit to fall from 18.6 per cent of GDP in 2015 to 14.3 per cent in 2018.
The enhanced revenues could be realised via a series of measures, including reducing subsidies. The authorities seem determined to increase charges for governmental services. Excise tax on sin products like tobacco products is on its way in 2018.
The government is poised to record stronger expenditures in 2018, thus shouldering the responsibility of leading from the front in putting traction into the economy. In such a conservative nation as Oman, private sector investors take the clue from the government with regards to investing.
The writer is a Member of Parliament in Bahrain.