Oman cuts spending, budget deficit to reach $8.6bn in 2016

Oman’s government has lowered spending and slashed subsidies, announcing a budget deficit of OMR 3.3bn ($8.6bn) in 2016, according to official Oman News Agency.

The sultanate, one of the worst hit among the Gulf countries due to the oil price drop, estimated state spending to reach OMR 11.9bn, down 11 per cent from actual spending in 2015. Revenues are also expected to fall by 4 per cent to OMR 8.6bn this year as oil prices continue their bearish run.

The government said that it has allocated nearly OMR 4bn for education, health and welfare.

Oman’s economy is still heavily reliant on oil with the oil and gas sector representing 75 per cent of total revenues, the statement added. But non-oil revenues are expected to grow marginally from OMR1.5bn in 2015 to OMR 2.45bn this year.

The country, which posted a budget deficit of OMR 4.5bn in 2015, declared a range of spending cuts last week to finance the shortfalls. The country said that it will deregulate fuel prices, raise corporate tax and increase fees on government services.

ONA said that the budget also proposed postponing “unnecessary projects”, cancelling government-sponsored vehicles for employees and reviewing the vehicle fleet of the ministries to cut costs.

The agency added that the 2016 budget aimed to step up economic growth through spending on projects of economic significance, create an environment suitable for investments from the private sector, rationalise general spending and increase the contribution of non-oil revenue.

Gulf economies have sharply reduced spending in 2016 as Brent crude prices remain below $40 per barrel, down from a high of $115 per barrel in mid-June 2014. Although most Gulf countries have massive reserves earned from years of high oil prices, the governments are now looking at more stable sources of income to finance gaping budget deficits.

Saudi Arabia, the biggest economy in the Gulf Cooperation Council, raised petrol prices by 50 per cent while the United Arab Emirates slashed fuel subsidies last year. The Gulf governments are also reportedly looking to impose a value-added tax by 2018 to bolster their non-oil income.