The International Monetary Fund (IMF) expects Oman’s fiscal deficit to sharply decline to 2.4 per cent of GDP in 2021 from around 19.3 per cent of GDP in 2020.
‘Fiscal and external balances are projected to improve considerably over the medium term . After deteriorating sharply in 2020 to a deficit of about 19.3 per cent of GDP, reflecting lower oil revenue and a slump in economic activity, the fiscal balance is projected to improve to -2.4 per cent of GDP in 2021,’ the IMF said in its statement of Article IV Mission to Oman.
The statement noted that the sultanate’s fiscal balance is expected to move to a surplus over the medium term, with a substantial decline in the government debt. This substantial improvement in fiscal balance will be contributed mainly by higher oil prices and fiscal adjustment measures taken by the government.
The impact of fiscal consolidation, the IMF said, is mitigated by various policy support measures including social spending and temporary reductions and waivers of taxes and fees.
‘With oil prices currently higher than budgeted, there is scope for additional temporary targeted support for affected households and businesses if needed without jeopardizing medium-term consolidation objectives,’ the fund said.
According to the IMF, steadfast implementation of the sultanate’s Medium-Term Fiscal Plan (MTFP) is essential to reinforce fiscal sustainability. The sultanate’s MTFP targets the elimination of the fiscal deficit over the medium term by boosting non-hydrocarbon revenue while keeping nominal fiscal expenditure broadly constant and improving its efficiency and targeting.
‘Strengthening Oman’s medium-term fiscal framework, with a clear fiscal anchor, would help in achieving the fiscal consolidation. The government has taken important steps in developing the fiscal framework with a balanced budget objective,’ the IMF said.
The statement said that Omani authorities have requested IMF’s technical assistance to help strengthen the medium-term fiscal framework.
The IMF further said that the establishment of the Debt Management Committee to coordinate debt issuance of Oman and manage financial exposures is a welcome step.
‘The authorities have requested IMF technical assistance to help develop a medium-term debt strategy to guide the government’s borrowing program and provide more predictability to the financial system,’ the IMF added.
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