Muscat – As the average oil price is likely to be higher than the levels estimated in Oman’s 2022 budget and gas and non-oil revenues are expected to record further increases this year, the sultanate is expected to record the smallest budget deficit in 11 years, according to Emirates NBD, one of the leading banks in the Middle East region.
Oman’s budget deficit dropped sharply to RO1.22bn (or 4 per cent of GDP) in 2021, according to preliminary estimates, compared to the RO4.4bn (or 15.8 per cent of GDP) shortfall recorded in 2020.
The main driver for reduction in deficit was the improvement in oil and gas revenues last year.
Oil prices and production increased in 2021, while Oman’s gas revenues jumped 41 per cent year-on-year on the back of higher LNG export volumes and gas prices.
Oman’s 2022 budget projects a modest widening of the budget deficit to RO1.55bn this year (4.9 per cent of estimated GDP). However, the budget is based on an average oil price forecast of just US$50 per barrel.
“We expect Brent oil to average US$68 per barrel in 2022, and as a result our oil revenue forecast [for Oman] is almost 40 per cent higher than budgeted. Non-oil revenues are also expected to rise this year, with the budget projecting a 20 per cent increase on actual 2021 non-hydrocarbon revenues. Our forecast is for a more modest increase in non-oil income, but we still expect Oman’s total revenue in 2022 to be 9 per cent higher year-on-year,” Khatija Haque, head of research and chief economist of Emirates NBD, wrote in a research note.
The sultanate’s 2022 budget assumes total spending of RO12.13bn, similar to actual
2021 spending. “We expect expenditure to come in higher than planned at RO12.5bn. Despite our higher expenditure estimate, we expect the budget deficit to narrow to just RO0.6bn (1.8 per cent of GDP) this year, a better outcome than the government’s own projections which are based on the much more conservative oil price assumptions,” Khatija said.
While the headline deficit has narrowed, almost 70 per cent of Oman government’s revenue will come from oil and gas this year, leaving the budget vulnerable to negative oil price shocks in the future, she warned.
“Debt service costs have increased sharply over the last five years, and are set to rise another 20 per cent in 2022. The budget for electricity and other subsidies is higher in 2022 than in 2021, and defence and security still accounts for 25 per cent of total spending although this share has declined from 35 per cent ten years ago,” Khatija added.
In late December, global ratings agency Fitch Ratings upgraded its outlook on Oman’s long-term foreign currency debt rating to ‘stable’ from ‘negative’, citing the improved budget and debt dynamics and the prospect of further reform.
Earlier Moody’s and S&P Global Ratings had also upgraded their outlooks on Oman’s ratings.
With higher oil prices and increased production, Emirates NBD estimates Oman’s real
GDP growth to be at 4.0 per cent for 2022.
“With no new GDP data for 2021, we retain our estimate of 2.2 per cent GDP growth for last year, and expect growth to accelerate to 4.0 per cent in 2022, largely on faster hydrocarbon sector growth. The Finance Ministry indicated that oil production would rise to over 1mn barrels per day in 2022, which implies growth of around 5 per cent from average 2021 oil output,” Khatija noted.