Plunge of oil prices by 70% during the last 18 months and the non-encouraging indicators about oil price re-hike forced a number of countries to take certain measures to rectify their financial conditions, according to Mustafa Ruwais, an international economic.
He said in an analysis to Oman News Agency (ONA) that the rectification and improvement of financial conditions may not be implemented in a sharp manner but rather should be introduced gradually in proportion with the volume of reserves of each state.
He added that 2016 budget of the Sultanate focused on enhancing efficiency and reducing expenditure, especially the government could not afford to continue providing the same incentives that have been provided throughout the period from 2011 to 2014. These incentives created an average of 3.8% burden on the Sultanate’s GDP.
The financial policies associated with 2016 budget go in the right track, as they will result in increasing tax revenues, limiting expenditure, especially on fuel subsidy and identifying the top priorities for development expenditure.
The tax revenues ( one of the non-oil revenues ) of the Sultanate in 2013 was 5.5% ; the biggest compared to the other GCC countries. Still, this rate is the lowest compared to other oil –exporting countries, such as Indonesia and Mexico which levy double the tax in Oman.
He also said that the government will revise the tax exemptions and expand the tax base by levying added value and production tax, in addition to property and individual income tax.
He affirmed that the decision to lift fuel subsidy is a step in the right direction because fuel energy exacerbates the financial imbalance and encourage excess consumption.
‘Till 2014, the government expenditure trajectory on all elements, such as wages, subsidy and defence has been going upward, therefore containing such expenditure is considered a wise policy, he continued.
‘ Updating the budget system , which is assisted by the World Bank, ushers well in terms of ensuring proper allocation of resources and efficiency of such allocation, he furthered.
Mustafa Ruwais went on saying ‘ while the measures taken to rectify the financial conditions in the Sultanate are inevitable , still they are not enough to reduce reliance on oil revenues. The Sultanate, thus needs to introduce structural improvements in some fields, such as education, labor market, civil service and privatization. It also needs to improve the business environment to enhance the growth of the private sector and ensure economic diversification.
” The main aim of privatization is to ensure better efficiency and performance of the state-owned companies. From the theoretical point of view, there is no difference between private and public companies as they both operate in a competitive and liberal market. Still practical experience show that the private companies perform better than public companies, he continued.
‘ one of the main aims of privatization is to eliminate (or at least reduce) the direct and indirect subsidy which burdens the state budget allocated to public companies. Moreover, the government needs to have a more comprehensive approach that include all companies that should be privatized. The approach should have a well-defined and clear timeline for implementation. Currently there are 60 companies , mall number of them have the largest part of investments; most of which in oil and transport sector. The other companies are relatively small and distributed onto a number of activities.
The financial expert said that the ranking of the Sultanate in business environment , especially the world competitiveness report , shows that the Sultanate’s ranking has been downgraded by 29 positions during three years only. The Sultanate’s ranking at the doing business report was also downgraded by 10 positions. This shows that there is a dire need to take active measures to address this situation.
‘ The oil price decline may be an opportunity for the government to introduce deeper structural and financial reforms. The government may also need to separate between the public budget and the fluctuation of oil prices. It also needs to create a proper balance between the roles of private and public sectors, he concluded.