Hike in spending to drive Oman’s growth

Business Wednesday 16/January/2019 14:56 PM
By: Times News Service
Hike in spending to drive Oman’s growth

Muscat: Increased government spending outlined in the State Budget 2019 along with the active role of the private sector will drive economic growth in the Sultanate, KPMG said at a seminar held in Muscat.
Following Oman’s published State Budget for 2019, KPMG provided an analysis and discussed its implications for companies with a number of Oman’s business leaders.
Ashok Hariharan, Partner and Head of Tax, presented some of the key highlights of the State Budget and addressed what they mean for businesses.
On January 1, Oman revealed its 2019 budget, where total spending is projected to be OMR12.9 billion, an increase of three per cent against the previous year’s budget. Revenues are estimated at OMR10.1 billion, leaving a budget deficit of OMR2.8 billion, which will be lower than the actual deficit for 2018 by OMR100 million.
The budget is based on an oil price of US$58 per barrel. The price for Omani crude was $53 per barrel at the end of 2018, while the average realised price at the end of November 2018 was $68 per barrel.
As much as 74 per cent of government revenues are expected to come from oil and gas. Total expenditure is budgeted to increase by three per cent without curtailing development expenditure and the deficit is proposed to be predominantly financed out of borrowings. The government is focused on achieving economic diversification and the creation of employment opportunities. The budget includes the creation of 5,000 job opportunities in the public sector that will be filled based on needs, particularly in the education and health sectors.
Hariharan said: “Volatility in oil prices has posed challenges for the government, which was required to carefully balance expenditures within anticipated revenues and also keep the deficit at a sustainable level. The 2019 budget aims to allocate sufficient funds to strategic infrastructure projects, as well as maintain infrastructure and continue to push for economic diversification through private sector participation. We believe this should inject confidence in the economy and steer it in the right direction in 2019.”
There is also an effort to improve the investment climate and offer support to small and medium enterprises by assigning a share of government projects to such entities. The other prominent feature of the Budget exercise is to develop a multi-year Budget Framework (2019-2022), which is one of the six-point action plans identified to achieve fiscal discipline and manage public spending.
The Budget also proposes to promote various projects under the Tanfeedh programme in the manufacturing, logistics, tourism, fisheries and mining sectors, where it calls for greater participation of the private sector to achieve desired goals.
Budget 2019 anticipates a new "local tax" with a projected revenue of OMR100 million, which is likely to be the proposed excise tax on selective commodities considered harmful to the health and environment. While the Budget does not make any references to VAT, Oman is now preparing for implementation after September 2019. It is, however, more likely that implementation will occur on January 1, 2020.
The seminar also included a discussion with esteemed panelists, namely Peter Walichnowski, CEO Omran; Ahmed Said Tabook, Programme Director Markets at Asyad, Oman Global Logistics Co (government holding company for logistics); Dr Saeed Al Muharrami, Professor at Sultan Qaboos University; and Badar Al Dhuhli, Lecturer, Oman Tourism College.
The panelists, amongst other things, gave insights into the potential of the tourism and logistics sectors in Oman, as well as the role of private players to develop these sectors.
Overall, the speakers noted that the Budget 2019 represents a promising step towards stimulating the economy, maintaining fiscal balance and supporting diversification by expanding private sector participation. The International Monetary Fund expects Oman to have the fastest growth rate amongst the GCC countries in 2019, which is reflective of the opportunities in the economy.