A downturn in oil revenue on the back of production cuts by the Organisation of the Petroleum Exporting Countries contributed to a difficult year for Oman in 2019, as the government continued with efforts to balance the budget and diversify the economy.
Based on data compiled in October, the IMF anticipated flat growth for the year, down on 2018’s expansion of 1.8 per cent.
This figure is lower than the fund’s earlier estimate of 1.1 per cent growth. The decision to revise the outlook was largely influenced by lower levels of oil activity.
National crude production was down 3 per cent year-on-year (y-o-y) between January and November, according to the National Centre for Statistics and Information, while net oil revenue dropped 7.6 per cent y-o-y in the first 10 months of 2019 to RO 5bn ($13bn). The oil sector is expected to rebound strongly in 2020, however, which should drive national growth of 3.7 per cent, according to the IMF.
New reforms
While the hydrocarbons sector did not have a banner year, notable progress was made in various non-oil industries. Chief among these was mining, which benefitted from reforms designed to stimulate investment.
Passed in February, the Mineral Wealth Law aims to streamline procedures and increase licensing transparency. It states that licences for exploration and prospecting may be granted for one year and are renewable for a period of three years. The licence period for exploration is five years, while concession agreements for large deposits may be granted for periods of between 20 and 30 years.
The law has also reformed the royalty system, with a view to incentivising investment. While the previous royalty rate was set at 10 per cent, this has been replaced with a minimum rate of 5 per cent that can be altered depending on market conditions.
Efforts to boost mining output come amid broader plans to diversify the economy away from a reliance on oil and gas. Mining features as one of the five main pillars of the government’s National Programme for Enhancing Economic Diversification, also known as Tanfeedh.
A specialised mining lab associated with Tanfeedh has created 43 projects and initiatives with an estimated value of RO 813m ($2.1bn), of which 99 per cent will be led by the private sector. The projects are expected to create more than 1,600 direct jobs and increase the country’s annual mineral production to 147m tonnes by 2023.
New laws
Elsewhere, in a push to attract more foreign direct investment and reinforce the regulatory framework of capital markets, a series of royal decrees were issued in September: the Foreign Capital Investment Law, the PPP Law, the Privatisation Law and the Bankruptcy Law.
With the passing of His Majesty Sultan Qaboos in early January, and the new sultan’s commitment to pushing ahead with the policies of his predecessor, this reform agenda looks set to continue in 2020.
The new decrees were complemented in October 2019 by the establishment of the Ministry of Technology and Communications, which was separated from the former Ministry of Transport and Communications; the Ministry of Transport will now stand as an independent ministry.
The new Ministry of Technology and Communications will assume control of telecoms policies and legislation, bringing further clarity to the direction of the sector, which will welcome a third mobile operator, Vodafone, in 2020.
New taxes
Another key development in 2019 was the introduction of a so-called sin tax on alcohol, sugary drinks and tobacco products, part of a broader drive to bolster public revenue.
The tax, which came into effect on June 15, placed a 100 per cent excise on alcohol, energy drinks, tobacco and pork products, as well as a 50 per cent tax on carbonated drinks. The levy is expected to generate RO 100m ($260.1m) annually, in addition to improving public health outcomes.
Its introduction comes amid efforts to reduce the fiscal deficit and rein in debt, both of which have increased in recent years amid softer global oil prices.
The budget deficit rose from 0.3 per cent of GDP in 2013 to a high of 21.2 per cent in 2016, and is expected to moderate to 7.2 per cent in 2019, according to the IMF, while government debt rose from 4.9 per cent of GDP in 2013 to 58.7 per cent in 2019. Following belt-tightening initiatives, the budget deficit fell by 5.6 per cent y-o-y between January and October, official figures showed.
In addition, there have been ongoing calls for the government to implement a 5 per cent value-added tax (VAT) in line with other GCC economies. Despite initially agreeing to introduce VAT in early 2018, Oman delayed the decision amid sluggish growth. The tax’s implementation is currently expected to be revisited in 2021.
Based on data compiled in October, the IMF anticipated flat growth for the year, down on 2018’s expansion of 1.8 per cent.
This figure is lower than the fund’s earlier estimate of 1.1 per cent growth. The decision to revise the outlook was largely influenced by lower levels of oil activity.
National crude production was down 3 per cent year-on-year (y-o-y) between January and November, according to the National Centre for Statistics and Information, while net oil revenue dropped 7.6 per cent y-o-y in the first 10 months of 2019 to RO 5bn ($13bn). The oil sector is expected to rebound strongly in 2020, however, which should drive national growth of 3.7 per cent, according to the IMF.
New reforms
While the hydrocarbons sector did not have a banner year, notable progress was made in various non-oil industries. Chief among these was mining, which benefitted from reforms designed to stimulate investment.
Passed in February, the Mineral Wealth Law aims to streamline procedures and increase licensing transparency. It states that licences for exploration and prospecting may be granted for one year and are renewable for a period of three years. The licence period for exploration is five years, while concession agreements for large deposits may be granted for periods of between 20 and 30 years.
The law has also reformed the royalty system, with a view to incentivising investment. While the previous royalty rate was set at 10 per cent, this has been replaced with a minimum rate of 5 per cent that can be altered depending on market conditions.
Efforts to boost mining output come amid broader plans to diversify the economy away from a reliance on oil and gas. Mining features as one of the five main pillars of the government’s National Programme for Enhancing Economic Diversification, also known as Tanfeedh.
A specialised mining lab associated with Tanfeedh has created 43 projects and initiatives with an estimated value of RO 813m ($2.1bn), of which 99 per cent will be led by the private sector. The projects are expected to create more than 1,600 direct jobs and increase the country’s annual mineral production to 147m tonnes by 2023.
New laws
Elsewhere, in a push to attract more foreign direct investment and reinforce the regulatory framework of capital markets, a series of royal decrees were issued in September: the Foreign Capital Investment Law, the PPP Law, the Privatisation Law and the Bankruptcy Law.
With the passing of His Majesty Sultan Qaboos in early January, and the new sultan’s commitment to pushing ahead with the policies of his predecessor, this reform agenda looks set to continue in 2020.
The new decrees were complemented in October 2019 by the establishment of the Ministry of Technology and Communications, which was separated from the former Ministry of Transport and Communications; the Ministry of Transport will now stand as an independent ministry.
The new Ministry of Technology and Communications will assume control of telecoms policies and legislation, bringing further clarity to the direction of the sector, which will welcome a third mobile operator, Vodafone, in 2020.
New taxes
Another key development in 2019 was the introduction of a so-called sin tax on alcohol, sugary drinks and tobacco products, part of a broader drive to bolster public revenue.
The tax, which came into effect on June 15, placed a 100 per cent excise on alcohol, energy drinks, tobacco and pork products, as well as a 50 per cent tax on carbonated drinks. The levy is expected to generate RO 100m ($260.1m) annually, in addition to improving public health outcomes.
Its introduction comes amid efforts to reduce the fiscal deficit and rein in debt, both of which have increased in recent years amid softer global oil prices.
The budget deficit rose from 0.3 per cent of GDP in 2013 to a high of 21.2 per cent in 2016, and is expected to moderate to 7.2 per cent in 2019, according to the IMF, while government debt rose from 4.9 per cent of GDP in 2013 to 58.7 per cent in 2019. Following belt-tightening initiatives, the budget deficit fell by 5.6 per cent y-o-y between January and October, official figures showed.
In addition, there have been ongoing calls for the government to implement a 5 per cent value-added tax (VAT) in line with other GCC economies. Despite initially agreeing to introduce VAT in early 2018, Oman delayed the decision amid sluggish growth. The tax’s implementation is currently expected to be revisited in 2021.
Source Link: www.omanobserver.om
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