Fiscal consolidation, investments in priority projects and increasing the efficiency of public spending are the highlights of Oman’s Budget 2020, says Kanaga Sundar, Head of Research at Gulf Baader Capital Markets, Oman

Oman’s State Budget 2020 adopts a balanced approach with focus on fiscal consolidation, investments in priority projects and increasing the efficiency of public spending. The government has planned to implement the budget as a conduit for its long term Oman Vision 2040 and the upcoming tenth Five-year Development Plan (2021-2025).

Overall, investment spending is estimated to be about RO5.3bn, of which RO1.3bn will be allocated for infrastructure projects and RO1.3bn for oil and gas production and about RO2.7bn investments to come from the industrial and services sector projects of state-owned enterprises (SOE). These project allocations would support the overall economic activities and would contribute in improving the investment climate as well as creating new jobs for the national workforce.

In the budget, the government has given greater emphasis on labor market regulation, with focus on boosting job creation and training. Several efforts have been made by the government for improving investment climate in order to attract more domestic investment and Foreign Direct Investment (FDI). One of the important strides in this direction has been the recent introduction of several new laws related to foreign direct investment, privatisation, public-private partnership (PPP), and bankruptcy. This will further buoy investor sentiment.

Rationalising the public spending

Since the collapse of oil prices in 2015, the government has taken several fiscal reforms taking into consideration social implications and also for achieving fiscal balance over the medium term. The budget focuses on the implementation of both inclusive and sustainable development plans to support the economic growth. Several efforts has been made by the government to rationalize the public spending and also improving the efficiency levels of SOEs which would enhance their economic contribution going forward.

The government focuses on further increasing non-oil revenue and rationalising current spending within acceptable levels. In addition, the government is keen on expanding the private sector participation in executing projects as well as managing key facilities and service delivery.

Boosting economic diversification

The government’s focus on implementing key projects identified in the National Programme for Enhancing Economic Diversification (TANFEEDH) would assist in improving economic activities in the medium term.

The government’s spending still remains critical for economic growth and we have seen increased allocations for diversification programme in the current year budget. We believe that efforts would be taken for the balanced diversification programme to achieve its long term objectives. The budget has talked about a number of projects and initiatives taken by the government, state-owned enterprises and private sector as part of economic diversification programme.

Key challenges

The decline in oil prices will continue to have a negative impact on the 2020 economic performance. The challenge for the government would be to revive the non-oil revenue growth and rationalise expenditure to bring down the breakeven oil price to a sustainable level during the medium term.

As per the budget, the fiscal deficit for 2020 is projected to be RO2.5bn, form about 8 per cent of GDP, lower than the 2019 budgeted deficit. About 80 per cent of the deficit would be financed through external and domestic borrowings and this would increase the overall debt burden of the country.

The government has emphasised multi-year fiscal consolidation efforts which would be monitored closely along with the fiscal balance initiatives (Tawazun) launched last year. In addition, the Public Authority for Privatisation and Partnership (PAPP) is expected to play a bigger role in the privatization initiatives and also in the development of partnership between Government and private institutions.