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Oman achieves remarkable fiscal turnaround

9 Jan 2024 By GULAM ALI KHAN

Muscat – Under the wise leadership of His Majesty Sultan Haitham bin Tarik, Oman has successfully achieved a remarkable turnaround in its fiscal situation and notable accomplishments across social and economic sectors, despite global economic challenges over the past three years.

The government’s efforts in controlling spending, coupled with measures to enhance spending efficiency and increase non-hydrocarbon revenues, have positively impacted the sultanate’s fiscal performance. Fiscal performance during the initial three years of the 10th Five-Year Development Plan (2021-2025) has shown remarkable improvement. The 2021 budget figures revealed a reduction in the deficit to approximately RO1.223bn. Subsequently, in 2022, there was a fiscal surplus of about RO1.146bn, surpassing the figures outlined in the financial framework of the 10th Five-Year Development Plan for the same period.

The preliminary results of the 2023 budget indicate a fiscal surplus of about RO931mn, in contrast to the deficit of RO605mn approved in the 10th Five-Year Development Plan’s financial framework for the corresponding period.

The fiscal surplus achieved during 2022 and 2023 allowed for increased social spending and initiatives to stimulate economic growth.

According to H E Sultan bin Salem al Habsi, Minister of Finance, Oman’s 2023 budget achieved additional revenue that was redirected to enhance social spending and stimulate economic growth. “This was reflected in the increase in the allocated budget for the 10th Five-Year Development Plan projects from RO5bn to over RO8bn by the end of 2023. Priority was given to projects with a social dimension, such as those related to education, healthcare, and social housing,” H E Habsi said in the 2023 budget statement.

Public debt decreases

Oman’s government directed a portion of the fiscal surplus during 2022 and 2023 towards reducing public debt and managing financial risks. These efforts improved Oman’s credit ratings, helping mitigate the impact of rising global interest rates on the government’s loan repayments.

Helped by fiscal reforms and elevated oil prices, Oman’s public debt has substantially decreased to 35% of gross domestic product (GDP) in 2023 from nearly 70% of GDP in 2020 when the dual shock of the pandemic and oil price collapse severely impacted the country’s fiscal situation. The sultanate’s debt-to-GDP ratio also declined significantly in 2023 compared to 2022 when it stood at 40%, attributed to the government’s spending restraints and higher-than-budgeted oil prices.

Due to the sudden fall in oil prices since 2014, Oman’s general budgets recorded deficits for around eight years until 2021, forcing the country to finance these deficits by borrowing from local and external institutions. As a result, public debt increased to nearly 70% of GDP in 2020.

As part of the government’s initiatives of Liability Management Exercise and Public Debt Reduction, the preliminary results of the 2023 budget showcase significant achievements. The government successfully reduced public debt from RO17.6bn in 2022 to RO15.2bn at the end of 2023, effecting a repayment of approximately RO 2.4bn, the Ministry of Finance said in its 2024 budget statement.

‘Consequently, the public debt ratio, calculated as a percentage of GDP, declined to 35% at the end of 2023. Additionally, the public debt servicing cost underwent a substantial reduction from the approved budget of RO1.2bn to about RO1.06bn in 2023,’ the ministry noted.

The preliminary results of Oman’s 2023 budget reveal a substantial surplus of approximately RO931mn, in stark contrast to the initially projected deficit of RO1.3bn. ‘Several factors have contributed to this positive shift, including an upturn in oil prices, the persistent implementation of the government’s fiscal consolidation measures, in addition to the reduction in public debt service,’ the ministry said.

Ratings boost

Oman’s initiatives to strengthen public finances, reduce public debt, and oversee the lending portfolio, coupled with elevated oil prices, have played a pivotal role in enhancing the state’s fiscal performance. Consequently, all major three global credit rating agencies upgraded Oman’s sovereign credit ratings during 2022 and 2023, marking a notable reversal from the rating downgrades observed in recent years.

In December 2023, Moody’s upgraded Oman’s credit rating from Ba2 to Ba1, as the outlook revised from positive to stable. Moody’s highlighted the enhanced and effective implementation of fiscal policies, emphasising the government’s resolve to curtail public debt. Moody’s expects a reduction in Oman’s public debt to around 35% of GDP in the coming three years.

In September 2023, S&P Global Ratings upgraded Oman’s credit rating from BB to BB+, with a stable outlook. S&P confirmed that Oman’s credit rating could improve further if the government persists in reducing public debt and improving non-oil revenue.

Similarly, in September 2023, Fitch Ratings also upgraded Oman’s credit rating from BB to BB+, with a stable outlook. Fitch lauded the government’s steadfast commitment to fiscal consolidation measures, even amid the upswing in oil prices. The agency affirmed that Oman’s credit rating could ascend further if external public debt as a percentage of GDP continues to decrease, coupled with an improvement in net sovereign foreign assets.

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