Oman will trim spending, cut subsidies and raise corporation tax as it seeks to curtail the effect of the oil-price rout that has hit the sultanate harder than neighbouring Arabian Gulf states.
This is the latest in a series of belt-tightening budgets in the Gulf, as the region’s oil producers wrestle with Brent prices near an 11-year low.
“The council of ministers approved a number of procedures to face the impact of lower oil prices in order to ensure the sustainability of the financial situation of the state,” ONA, the Omani state news agency, said on Wednesday.
“The most important of these actions include a reduction in government spending and the development of non-oil revenues by raising tax rates on profits of corporations, reviewing and raising fees on some government services, and adjusting prices of petroleum products.”
The government did not provide further details.
Describing Oman’s 2016 budget plans last week, Darwish bin Ismail Al Balushi, the minister responsible for financial affairs, said: “The current situation requires everyone to join hands, as covering the deficit is a joint responsibility. Efforts to rationalise expenditure are going on.”
Fuel prices, which are heavily subsidised by the Omani government, will be “altered according to global prices” from mid-January, the ONA said.
Oman, which the US-based ratings agency Standard & Poor’s has named as the Gulf state most vulnerable to an extended oil price rout, is to run a budget deficit equal to 17.7 per cent of GDP this year.
Unlike the UAE, which has reserves of more than 275 per cent of its GDP, and Saudi Arabia, with reserves of about 100 per cent of GDP, the Oman Investment Fund, the sultanate’s sovereign wealth fund, has 5.4 billion rials (Dh5.28bn) in assets under management, equivalent to 40 per cent of GDP.
The Omani fund is dwarfed in size by the sovereign wealth funds of its neighbours. The Abu Dhabi Investment Authority and Saudi’s SAMA Foreign Holdings each have more than US$600bn in assets under management.
Standard & Poor’s has cut Oman’s credit rating twice this year, as the oil rout had a greater effect on the country’s fiscal and trade positions than previously forecast.
Oman’s main stock index, the Muscat MSM 30, is down 14.1 per cent for the year to date. It rose by 0.2 per cent on Wednesday.
The sultanate’s 2015 budget anticipated an oil price of $75 per barrel this year; Brent crude has since fallen to $37, close to its 11-year low. The IMF estimates that the sultanate needs an oil price of $95 per barrel for it to cover its spending.
Oman’s budget cuts follow reductions in spending in the UAE and Saudi Arabia.
On Monday, Saudi Arabia said that it would reduce government spending by 13 per cent in its 2016 budget. The UAE trimmed spending by 21.6 per cent in the third quarter of the year, on the back of cuts to its subsidy bills.
Source: The National