Earlier this year, His Majesty Sultan Haitham bin Tarik issued two Royal Decrees promulgating the 10th Five-year Development Plan (“10th FDP”) (RD 1/2021) and the 2021 State Budget.
The State’s General Budget for Fiscal Year 2021 has been prepared in a way that goes in line with the objectives of Oman Vision 2040 and the 10th Five-Year Plan (2021-2025). The measures, endorsed by His Majesty Sultan Haitham bin Tarik, aim to enhance non-oil revenue and reduce spending on government units, resulting in fiscal sustainability.
The 2021 Budget also seeks to achieve a set of objectives, notably fiscal sustainability to continue achieving economic growth targets, a diversified economy, and targeted rates of domestic investment and foreign direct investment (FDI). Furthermore, the 2021 Budget endeavours to enable the private sector to play a greater role in accelerating economic growth, and to create more job opportunities.
Here is a brief look at the Oman budget in 2021 and the 10th Five-year development plan (2021 - 2025). The 2021 budget charted the following projections for the coming year:
| Projected Revenue | OMR 8.6 Billion |
| Projected Expenditure | OMR 10.8 Billion |
| Projected Deficit | OMR 2.2 Billion |
| Projected income from the Oman Investment Authority | OMR 1.2 - 1.4 Billion |
| Projected investments by the OIA | OMR 2.9 Billion |
| Projected income from Energy Development Oman (“EDO”) | OMR 2.3 Billion |
| Projected average oil price | $ 45 |
Though the projection is based on the average oil price of $ 45 per barrel, they are the lowest numbers Oman has seen since the financial crisis that hit in 2015. The 2021 budget is also drafted with the hopes that the spending on basic social services including health, housing, education, security, will remain at 40%.
A look at the Tenth Five-year Development Plan (2021 - 2025)
The Tenth Five-year Development Plan for Oman has a more optimistic approach and was drafted with the following intentions:
- promoting sustainable human development
- stimulating economic activity
- expanding the economic diversification base
- developing the economic environment
- achieving fiscal sustainability
- achieving a balanced development for the governorates and maintain economic diversification in different sectors
Source: PWC Middle East
The Tenth Five-year Development Plan is expected to bring about 135,000 job opportunities with an average of 27,000 job opportunities annually over the period of five years (within the timeframe of the plan). The 10TH FDP is also expected to gradually decrease in deficit to 1.7% by 2024 and attain a surplus of over OMR 65 Million by 2025.
The budget was prepared considering Oman Vision 2040, the turbulent financial and economic challenges currently prevalent due to the pandemic, the decline in oil prices, the agreement of the Petroleum Exporting Countries (OPEC +) to reduce crude oil production due to the decline in global growth and demand for oil, and other such implications. Apart from this, the budget was also drafted with an intention to achieve a level of economic growth that contributes to the employment of Omani nationals and continue to enhance the role of the Private Sector in the development process, maintaining the stability of inflation rates in a fashion that preserves a level of per capita income.
To attain fiscal balance in the years to come, Oman has made changes in the strategies used to deal with the present conditions of finding ways to reduce general expenditure. Till now, Oman has issued financial reports and publications intended to hasten plans for the reduction of expenditure, boost non-oil revenue by revisiting fees and taxes, governance of state-owned companies by transferring them to Oman Investment Authority (OIA) and endorsing the Medium Term Fiscal Plan (2020-2024).
The Objective of Oman’s 2021 Budget
Oman’s general budget for 2021 is based on:
- Limiting the budget of each government authority so that it does not exceed the revised budget in 2020
- Realizing measures aimed at rationalising spending and increasing efficiency
- Attaining the first stage of financial measures towards achieving fiscal sustainability
- Restraining the deficit with the intent to record a budget surplus by 2025 (as per the tenth five-year plan)
- Revising the program and performance budget through the expansion of government units implementing projects
- Exploring innovative means to finance government projects and services, mainly through a partnership between the public and private sector
The budget was planned with a deficit of OMR 2.2 Billion, which is considered the lowest since the financial crisis in the year 2015, although on the assumed low average oil price of $45. Mainly attributed to the transfer of the Oil & Gas sector expenditure burden, estimated at OMR 2.3 billion to the newly formed state-owned company Energy Development Oman SAOC (“EDO”).
Oman’s revenue is estimated to decrease by 19% to OMR 8.6 Billion with oil and gas revenue representing 63% (OMR 5.4 Billion).
The budget also includes a new expenditure element referred to as “provision for loan prepayments” which covers future repayment instalments of the government’s borrowings. The forecasted revenue from corporate tax on companies and corporations is estimated at OMR 400 million with a decrease of 27% in comparison to taxes budgeted to be collected in the year 2020.
In addition, the Government is keen to outsource services and projects to the Private Sector to ease expenditure, and usher in improved efficiency and cost savings. According to the estimates of the Ministry of Economy, it is expected that the total GDP at current prices by the end of 2020 will reach about OMR 24.7 billion.
The Sultanate of Oman has undertaken a set of fiscal and economic measures with the aim to alleviate the consequences of the prevailing pandemic and a sharp decline in oil prices, to minimise the burden on public spending. Therefore, the government has cut 10% from the approved allocations of government units and development budget, in addition to reducing capital expenditures (CapEx) and operating expenditures (OPEX) of State-owned Enterprises (SOEs) by no less than 10%.
Read our next blog post to gain insight into Oman budget 2021.
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