Oman economy: Further oil price dip to force greater austerity, says IMF

Muscat: If oil prices decline further, the government will be forced to implement more austerity measures, said a parliament member, as the International Monetary Fund (IMF) reported that Oman’s deficit ratio will remain unchanged in 2016, compared to last year.
The IMF, in its May 9 report, stated that Oman’s deficit to Gross Domestic Product (GDP) ratio will be 17.1 per cent in 2016 (vs 17.6 per cent in 2015), in spite of cuts in subsidies and lower capital expenditures.
“If oil prices decline, we will be forced to come out with more financial control measures. Or, if oil prices remains at $45 per barrel, then the government will have a space of at least six months to reach its budget targets, provided government sticks to adopted austerity measures,” Tawfiq Al Lawati, a Majlis Al Shura member, told Times of Oman.
Al Lawati also expressed his concern about whether the government will be able to cut expenditures by 15 per cent from 2015 levels, since austerity measures are not possible in some ministries.
In January, the Oman government unveiled its OMR3.3 billion deficit budget with a series of spending cuts and tax hikes to offset decreased revenues following the drop in oil prices.
Oman posted a budget deficit of OMR4.5 billion in 2015, as revenues declined by more than 50 per cent. In the report, the IMF said that despite the robust actions taken so far, the sustained decline in oil prices has adversely affected Oman’s economy.
“Non-hydrocarbon real GDP growth is estimated to have moderated to 4 per cent in 2015, and is projected to slow further in 2016. However, it is expected to pick-up over the medium-term, as fiscal consolidation provides space to maintain priority government capital spending and oil prices recover modestly.
“Continuing to build on current efforts to enhance the business climate could further improve future growth prospects. Inflation is projected to remain low,” it added.
A Muscat-based economist, who declined to be named, said that one of the main reasons for the sustained higher deficit is the fall in net revenue from oil, which is much less than projected in the budget.
“In view of this, the government will focus on more austerity, introduction of new taxes, increases in existing taxes, pruning down of subsidies and expenditures, and cuts in long term investments,” the economist said.
“And all this may not augur well for the market in the medium term. When economic activity shrinks, obviously there will be a negative fall-out on generating employment. One cannot wish away the reality that these are times for Oman to be tested, as well as the Middle East and oil export-dependent countries. Until oil prices recover, Oman will be compelled to re- calibrate its economic goals,” the economist added.
Recently, a report from the Arab Monetary Fund stated that the consolidated budget deficit of Arab countries as a group is expected to increase marginally in 2016 to 11.6 per cent of gross domestic product (GDP), as oil revenues continue to fall, while tax revenues are expected to be affected by sluggish growth at international and regional levels.
“The current account deficit for Arab countries, as a group, will reach $137.8 billion (representing 5.5 per cent of GDP) in 2016, compared to $105.7 billion for the deficit recorded in 2015,” the report said.