DUBAI: Oman needs to contain state spending and raise non-oil revenue in the medium term to keep its fiscal balance sustainable, the International Monetary Fund said yesterday.
“Spending restraint and non-oil revenue enhancing measures are needed to support a sustainable fiscal policy in the medium term,” the IMF said following annual consultations with Oman.
“The mission recommends an initial adjustment of one percent of GDP (gross domestic product) in 2013 by rationalising the planned increase in workforce, and restraining goods and services spending,” it said on its website.
The sultanate needs to adjust its fiscal balance by around 10 percent of GDP in total over the medium term as its budget health is becoming a significant challenge, the IMF added.
Oman finance ministry officials could not immediately be reached for comment. The finance minister hinted in April that budget policy would become more conservative.
The IMF painted a bleak outlook for Oman’s public finances in April, predicting the budget could slip into a deficit of 3.8 percent of GDP as soon as 2015, with the gap widening to as much as 13.3 percent in 2018. On Wednesday, it predicted a 2015 shortfall of 0.9 percent, widening to 6.8 percent in 2018.
The small non-Opec oil exporter raised its planned budget spending by nearly 20 percent this year compared to last year’s plan, to RO12.9bn ($33.5bn), partly to help keep social peace after street protests demanding jobs and action against corruption in 2011.
Steep rises in government hiring and a rise in the minimum wages of Omani citizens in the private sector have reduced the government’s room to respond to economic shocks, the IMF said.
The oil price which Oman needs to balance its budget rose to $80 per barrel in 2012 from $62 in 2008. It is expected to climb further to $120 per barrel by 2018, exceeding currently projected oil prices, the IMF said. Brent crude oil is currently around $103.
The IMF said a projected decline in oil prices would bring a turnaround in fiscal and current account surpluses after 2015 and 2016 respectively.
“The accumulated fiscal buffers would provide initial cushion but would erode quickly,” it said. “The increasing wage bill and current spending, if not contained, could endanger the government’s longer term fiscal sustainability.”
The IMF also said it would be difficult for Oman to put its state finances on a sustainable footing without changing subsidies, mainly on fuel, adding that domestic fuel prices should be raised gradually.
The government of H M Sultan Qaboos bin Said, who has ruled the country since 1970, created 100,000 new jobs in the civil and defence sectors in 2011-13, the IMF said.
Reuters
