Oman's state budget focuses on improving efficiency, says economist

Muscat: Fall in crude oil prices by 70 per cent in the last 18 months and the remote possibility of recovery in prices in the short-term has prompted many countries to initiate measures to rectify their financial conditions, Mustafa Ruwais, an international economic expert said.
He also said that the improvement of financial conditions should be gradual, in proportion with the volume of reserves of each state.
The analyst, while explaining that Oman’s 2016 budget focussed on enhancing efficiency and reducing expenditure, said that the government could not afford to continue providing the same incentives that have been provided from 2011 to 2014. These incentives created an average of 3.8 per cent burden on the Sultanate's gross domestic product (GDP), he added.
The financial policies associated with 2016 budget should be on the right track, as they will result in increasing tax revenues, limiting expenditure, especially on fuel subsidy and identifying the top priorities for development expenditure.
The tax revenue (one of the non-oil revenues) of the Sultanate in 2013 was 5.5 per cent — the biggest as compared to the other Gulf Cooperation Council (GCC) countries. Still, this rate is the lowest as compared to other oil-exporting countries, such as Indonesia and Mexico which levy double the tax Oman does.
Mustafa further said that the government will revise the tax exemptions and expand the tax base by levying added value and production tax, in addition to property and individual income tax. He affirmed that the decision to lift fuel subsidy is in the right direction because fuel energy exacerbates the financial imbalance and encourage excess consumption.
“Till 2014, the government expenditure trajectory on all elements, such as wages, subsidy and defence has been going upward, therefore containing such expenditure is considered a wise policy,” he explained.
“Updating the budget system, which is assisted by the World Bank, augurs well in terms of ensuring proper allocation of resources and efficiency,” he said. While the measures taken to rectify the financial conditions in the Sultanate are inevitable, they are still not enough to reduce reliance on oil revenues, Mustafa said.
“The Sultanate thus needs to introduce structural improvements in some fields, such as education, labour market, civil service and privatisation. It also needs to improve the business environment to enhance the growth of the private sector and ensure economic diversification,” he said.
While explaining that the main aim of privatisation is to ensure better efficiency and performance of the state-owned companies, he said from the theoretical point of view, there is no difference between private and public companies as they both operate in a competitive and liberal market. Still practical experience show that the private companies perform better than public companies.
The analyst said that one of the main aims of privatisation is to eliminate (or at least reduce) the direct and indirect subsidy which burdens the state budget allocated to public companies. Moreover, the government needs to have a more comprehensive approach which includes all companies that should be privatised. The approach should have a well-defined and clear timeline for implementation.
Currently there are 60 companies, and a large number of them have the largest part of investments, most of which in the oil and transport sector. The other companies are relatively small and distributed onto a number of activities.
The financial expert said that the ranking of the Sultanate in the business environment, especially in the world competitiveness report, shows that the Sultanate's ranking has been downgraded by 29 positions in three years alone. Oman’s ranking at the doing business report was also downgraded by 10 positions. This shows that there is a dire need to take active measures to address this situation.
The oil price decline may be an opportunity for the government to introduce deeper structural and financial reforms, he said. The government may also need to separate between the public budget and the fluctuation of oil prices. It also needs to create a proper balance between the roles of private and public sectors.