Statement on State’s General Budget for Fiscal Year 2018

Muscat— The Ministry of Finance today issued a

statement on the State’s General Budget for the Fiscal Year (FY) 2018.

The statement reads as follows:

“On the occasion of promulgation of the Royal Decree no. (1/2018)

ratifying the State’s General Budget for the Fiscal Year (FY) 2018, the

Ministry of Finance (MOF) is pleased to present, in coordination with

the Supreme Council for Planning (SCP), the main features and

estimates of the General Budget for FY 2018, and the expected

financial results for FY 2017.

The fiscal consolidation efforts and relatively recovery of oil prices

helped to narrow the aggregate fiscal deficit of 2017 Budget, as

compared to the deficits in 2015 and 2016. Despite the anticipated oil

price recovery in 2018, the State’s General Budget is still challenged

by high public spending as compared with low level of total revenues.

In addition to the implications on public finance driven by the deficit

accumulated over 2015-2017, most notably of which is the rising of

public debt and its burden on financial resources. Therefore, there is a

need for further fiscal consolidation to control public spending,

particularly current spending; and to raise non-oil revenues in order to

restore fiscal balance over the coming three years.

The 2018 Budget framework comes to support the General

Objectives of Ninth Five-Year Development Plan, most importantly are

achieving targeted growth rates, fostering an environment that

stimulate investment in private sector, enhancing the role of private

sector in economic growth, and creating jobs for the citizens. In

addition to enhancing the efficiency of public spending, and making

optimum use of allocations; as well as maintaining adequate level of

public investment. This is to ensure the implementation and completion

of projects � as approved in the aforesaid plan and National Program

for Enhancing Economic Diversification (Tanfeedh) � in key sectors

including oil and gas sector. These objectives will lead to achieve a

positive impact on economic growth.

Highlights of the preliminary financial results for FY 2017; and main

features of 2018 Budget including measures and policies, are

summarized as follow:

First: Economic Developments:

Global Economy:

The global economy has shown relatively a clear

recovery in 2017, reflected by high demand and higher levels of

investment and international trade. This helped to boost the confidence

about the prospects for global economic growth. According to the

World Economic Outlook (WEO) issued in October 2017 by the

International Monetary Fund (IMF), the global growth rate is projected

to rise to 3.7% in 2018 � with significant variation across regions � as

compared with a 3.6% in 2017.

According to most of the international institutions and organizations,

oil price is expected to range between US $55-60 per barrel, in 2018.

With improved climate conditions and high supply, main commodity

prices are likely to remain low in 2018.

National Economy:

In the last two years, since the beginning of the Ninth Five-Year

Development Plan, the national economy proved to be able to maintain

positive growth rates. This is despite the challenges arising from lower

oil prices. As oil prices remained low in 2015-2016, oil activities

contribution to GDP decreased by 21% at current prices, whereas

non-oil activities contribution increased by 2.6% over the same period.

This pushed GDP to grow by 5.4% at constant prices in 2016.

Gross capital formation data for the period (2014-2017) shows

increase in private sector contribution to the implementation of

investment schemes, rising to 52% and 60% in 2014 and 2017,

respectively.

According to the growth trends in 2017, GDP rose in the first half of

2017 by 12.8% at current prices, as compared with the first half of

2016. Non-oil activities grew by 3.8% over the same period, while oil

activities jumped by 34.9% during the first half of 2017 as compared

with the first half of 2016.

The growth rate is projected to be positive at a rate of at least 3% in

2018. This is driven by oil prices recovery, and efforts to diversify the

economy and improve investment climate.

Second: Budget Objectives:

The State’s General Budget is an annual executive financial

program for the Five-Year Development Plan. Therefore, the

preparation of revenue and expenditure estimates, and deficit

projections in the 2018 Budget, seeks to achieve the following

objectives:

Maintaining Fiscal and Economic Stability:

Fiscal sustainability and mitigation of potential risks are the main

objectives that the 2018 Budget strives to achieve. In this respect, the

revenues and spending of 2018 Budget have been estimated to

achieve the following:

Reducing budget deficit to a sustainable level of no more than 10%

of GDP.

To keep reducing public spending, particularly current spending to a

sustainable level of 40 – 45% of GDP.

To continue bring down breakeven point/price over the coming years.

Revitalizing non-oil revenues and enhancing their contributions to

overall government revenues by no less than 30% of total revenues.

Limiting the growth of public debt, and reduce it over the coming years.

Maintaining domestic liquidity and focusing on the external borrowing

to finance budget deficit.

Raising Economic Growth Rate:

Public spending is one of the main drivers of economic growth and

employment. In this regard, the 2018 Budget sets out actions the

government will take to:

Achieve economic growth by no less than 3%, and control inflation

rate so as to maintain per-capita income level.

Provide allocations required to government units that help, directly

and indirectly, to achieve targeted economic growth for 2018.

Allocate appropriations required for implementing the initiatives of

Tanfeedh, pertaining to the improvement of investment climate,

enhancement of the private sector’s role, and boosting investment

rates in GDP.

Maintain adequate level of public investment, with the aim to

enhance economic diversification, increase employment rates, and

strengthen social development.

Enhance public-private partnership (PPP) in order to accelerate

implementing more investment projects and private sector initiatives.

This is to be realized while maintaining fiscal balance at

macroeconomic level.

Give special attention to allocations for the maintenance of assets,

facilities, and infrastructure in order to ensure the effectiveness and

sustainability of the development projects already accomplished.

Support Small and Medium Enterprises (SMEs) by allocating some

of the government projects to SMEs. In addition to, speed up the

payments of SMEs and continue providing loans to the SMEs through

Al Raffd Fund and Oman Development Bank.

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Support efforts to the development of renewable energy sources,

and Sahim, which is a renewable energy initiative. This initiative aims

at encouraging citizens to make use of solar panels to generate power,

and feed electricity grid with electricity surplus generated from the solar

panels.

Stability of Citizens’ Standards of Living

Oman has made remarkable achievements in areas such as

health, education, housing, basic services and infrastructure, which

uplifted the citizens’ standards of living to higher levels. Hence, the

budget quest to maintain the achievements through the following:

Education, Health and Social Welfare Sectors:

The allocations approved for these sectors in 2018 Budget estimated at

RO (3880) million. This represents the lion portion of the budget due to

significant importance of the sectors for the citizens.

Recruitment:

In light of the decision made by the Council of Ministers, upon the

Royal Directives, to provide 25000 job opportunities for job seekers, an

executive program has been adopted to implement the decision. The

program will run until the first half of 2018. Until the end of December

2017, around 4800 job opportunities have been provided in the private

sector. The employment in public sector shall only be based on a

needs basis, and in line with the budget situation.

National Training Fund:

The Government gives special emphasis to the training of Omani

job-seekers in order to enhance their skills and capacities so that they

can join labor market. In this respect, the National Training Fund has

been established, and an amount of RO 62 million has been allocated

to cover the cost of training programs. These training programs are to

adopt the latest global approaches for training and on-job training. The

Fund currently trains the first batch consisting of 4300 trainees; and

various companies have been coordinated with to employ these

trainees once they finish the training.

Housing Aid, Social Housing Scheme, and Housing loans:

An amount of RO 80 million allocated to continue to implement the

Social Housing Scheme and Housing Aid Program for eligible citizens,

as well as housing loans provided by Oman Housing Bank. Moreover,

the appropriations of housing and development loans amount to about

RO 30 million.

Fuel subsidy:

In the implementation of the decision made by the Council of

Ministers with respect to fuel subsidy for eligible citizens, the required

appropriations shall be allocated to cover the subsidy in accordance

with the approved mechanisms.

Supporting SMEs:

Provide allocations required to implement the catalytic initiatives

conducive to the development and strengthening the role of SMEs as

being one of the most sectors the economy relies on to create jobs for

Omani youths. This is in addition to contribute towards the utilization of

natural resources, maximizing economic value added and economic

diversification.

Third: Main Features of the 2018 Budget:

Preliminary results of 2017 Budget:

Public Revenues:

The budgeted non-oil revenue target was not realized,

as some revenue-producing activities have been affected by the

decline of oil prices, such as government investments and income tax

collected from corporates working in oil sector. In addition to delayed

the implementation of some measures taken to revitalize the revenues

of these activities.

Public Spending:

According to the (preliminary) actual estimates, overall

public spending totaled RO 12.7 billion in 2017 compared to RO 11.7

billion estimated in the budget, up by 9%. This is attributed to the rise

in investment spending over development projects, oil and gas sector

projects and electricity sector subsidy; as well as funding a number of

budget items to meet necessary and urgent needs. In addition to high

cost of public debt service as a result of increased borrowing.

Despite the fact that the actual spending is higher than the estimated

spending, the actual spending is, however, lower than actual spending

recorded in 2016, by RO 208 million i.e. (2%).

Estimates of General Budget for FY 2018:

Public revenues, spending and estimated deficit of 2018 Budget, are

illustrated as follow:

Public Revenues:

Aggregate revenues are estimated at RO (9.5) billion, increasing by

(3%) as compared to expected actual revenues for 2017. These

revenues consist of oil and gas revenue of RO (6.78) billion,

representing (70%) of total revenues. Non-oil revenues are estimated at

RO (2.72) billion i.e. (30%) of total revenues.

The following considerations have been taken into account during the

preparation process of revenue estimates:

Oman’s commitment of to cut oil production in line with OPEC’s

decision to reduce production volumes.

Gas revenues from Khazzan-Makarem gas field.

Selective tax revenues (After implementation)

Revenues generated from Privatization Scheme.

Improve efficiency of tax and fees collection.

Expanding in the provision of preferential services.

Public Spending:

Total public spending is budgeted at about RO 12.5 billion,

increasing by RO 800 million i.e. (7%) compared with the estimated

spending of 2017 budget. The outcomes of measures taken to cut

spending, have taken into account the following:

Current Expenditures of Ministries and Government Units:

These expenditures are estimated at RO (4.35) billion, down by (1%)

as compared to budget approved for 2017. The current expenditures

include salaries, annual allowance and entitlements of the employees

of RO (3.3) billion; and also include operating expenses of RO (0.6)

billion. The salaries, annual allowance and entitlements account for

75% of total current expenditures of ministries and government units.

Investment Expenditures:

As for investment expenditures, the work on a number of strategic

projects is under completion. As follow:

The new Muscat International Airport to operate in 2018. This airport, as

one of the strategic projects, will bring about a paradigm shift within

tourism and logistics sectors in Oman.

The first phase of Batinah Coastal Road project, including the

compensation for the people affected by the project, is completed.

Batinah Expressway project is ongoing.

Completion of Bidbid-Sur dual carriageway project, including four

tunnels in Wadi Al Uqq.

The implementation of the 240-km Adam-Thumrait road dualization

project. The current projects of roads shall contribute to achieve Oman

Logistics Strategy 2040 (SOLS 2040), which seeks to enhance the

contribution of logistic sector to GDP.

Liwa Housing project is underway.

Water networks being implemented in various Wilayats.

In partnership with private sector, agreements have been signed to

construct three new hospitals, namely Sultan Qaboos Hospital at

Salalah, Al Suwaiq Hospital, and Khasab Hospital.

Provide allocations for the scholarships and grants for Omani students.

Provision of allocations for a number of new schools.

As for investment projects in Duqm, some projects have commenced

such as Duqm Refinery, crude oil storage terminal, Karwa Motors,

Sino-Omani Industrial City, and Sebacic Oman Bio-Refinery for

Production of Derivatives of Castor Oil. This is in addition to a number

of real estate development projects, including little India Tourism

Complex.

Spending, on the implementation of development projects, is

estimated at RO (1.2) billion in 2018 Budget, representing the

estimated amount to be paid during the year as per the actual work in

progress for the projects. Spending on development projects has been

considered not to be cut. This is to ensure the completion of all

ongoing projects without delay, and make timely payments.

Several state-owned-enterprises (SOEs) currently working towards

implementing a number of projects during 2018, estimated to cost RO

3 billion. This will give a further boost to economic activity, accelerate

economic growth and create more jobs.

Oil and Gas Production Expenditures:

These expenditures are estimated at RO (2.1) billion, up by (15%)

compared with 2017 budget estimates. This includes the cost of oil and

gas production, and expenses required to maintain the future

production levels and increase oil reserves.

Subsidies:

The appropriations allocated for subsidies are estimated at RO

(725) million, higher than the 2017 approved budget by RO 330 million

i.e. 84%. This is due to the increases in electricity subsidy to meet the

growth in consumption. This includes subsidies for cooking gas,

housing and development loans, and operational support to SOEs.

Other Expenditures:

These expenditures include: public debt service, development

expenses of SOEs, and government cash contributions to the capitals

of local and international companies and institutions. Allocations for

such expenditures are estimated at RO (685) million, RO (140) million

higher than 2017 Budget estimates. This is due to the increasing cost

of public debt service by RO 215 million; and rising of development

expenditures of SOEs by nearly RO (25) million. While government

cash contributions, to the capitals of local and international companies

and institutions, dropped by RO 100 million.

Deficit:

According to the (preliminary) final accounts, the actual fiscal deficit

for FY 2017 is projected to be around RO 3.5 billion. While the budget

deficit for FY 2018 is estimated at RO 3 billion i.e. 10% of GDP. In

comparing the deficit during the three years (2016, 2017 and 2018), it’s

clear that the deficit is declining. The estimated deficit for FY 2018 is

lower than actual deficit of 2016 by RO 2.3 billion i.e. 43%.

Deficit Financing

Despite the uncertainty over debt market caused by unfavorable set

of global economic conditions, the Government was, however, able to

finance the approved 2017 budget spending by borrowing mainly from

external sources. The Government relied upon borrowing from external

sources to avoid crowding out the private sector in meeting its financing

needs, as well as to enhance foreign currency cash flows and

reserves. In 2017, an international bonds worth RO 1.9 billion, and

Islamic bonds (Sukuk) of RO 800 million, have been issued. The

Government has likewise obtained commercial loans valued at RO 1.4

billion.

Subsequently, domestic and foreign borrowing accounted for (90%)

of total funding, while the rest i.e. 10% was covered by drawing on

reserves.

As for 2018 budget deficit, RO 2.5 billion representing 84% of the

overall budget deficit will be financed by external and domestic

borrowing. The rest of the deficit, estimated to nearly RO (500) million,

will be covered by drawing on reserves. This comes in line with the

guidelines set out by the government to maintain sovereign reserve

funds, and to rely upon borrowing, notably external borrowing, to

finance the deficit.

Fostering the Contribution of Private Sector

The most important principles of the Ninth Five-Year Development

Plan are developing private sector and enhancing its role in the overall

economic activity, and improving business environment and investment

climate. According to this plan, the contribution of private sector

estimated at about 52% of total investments. However, the private

sector registered 60% of total investments in 2016. This is as a result of

activating a set of policies, including:

Improving Investment Climate and Business Environment by

Removing Impediments to Doing Business:

The Government is taking measures to tackle the constraints

hindering the competitiveness of Oman, including through developing

the legislative framework. In this respect, the Government is currently

working towards enacting Foreign Investment Law, Public-Private

Partnership (PPP) law, and Bankruptcy Law.

Establishing a national office for competitiveness to monitor

international indicators in order to improve the enablers required to

raise the competitiveness of Oman.

Provision of allocations for E-Government projects in order to

enhance the performance of government units; and to ensure better

services delivery, with the aim to engage the private sector in financing

and implementing these services.

Promoting Public-Private Partnership (PPP)

To enable the private sector to play a vital role in the implementation

process of development plans, a set of initiatives have been

introduced, as follows:

First: Capacity-building and development of national competencies.

Second: Enhancing business environment.

Third: Developing the legal and institutional framework with respect to

partnership projects.

In this respect, a set of projects have been selected within the

framework of Tanfeedh. These projects are chosen to stimulate five

promising sectors which are manufacturing, logistics, tourism, fisheries,

and mining. The projects are proposed to be financed through

innovative financing methods in partnership with private sector

Privatization Scheme

Despite the financial and economic challenges posed by the decline

of oil prices, affecting investment activities and capital markets in the

region, the privatization scheme is continued. This scheme is essential

to promote and expand participation of private sector in the economic

activities. According to the scheme, six SOEs planned for privatization

during 2018.

National Program For Enhancing Economic Diversification (Tanfeedh):

The first stage of Tanfeedh included three key sectors which are

manufacturing, tourism and logistics. In addition to supportive sectors

namely finance and innovative financing, and employment and labor

market. The Laps/workshops of the aforesaid program have proposed

(91) initiatives. The Implementation Support and Follow-Up Unit (ISFU)

is currently supporting government units concerned to enable them to

implement the initiatives on time.

Enabling initiatives are being implemented currently in the

manufacturing sector to ensure sustainability of the industrial sector.

Such initiatives includes but not limited to strengthening innovation

infrastructure and establishing an association for the industrialists.

Furthermore, an agreement between the Ministry of Commerce and

Industry and Sohar University was signed to establish a new center for

industrial research and a plant for the manufacture of dies and moulds.

As for tourism sector, facilitation for tourist visa was granted to visitors-

exporting markets. In addition to enabling E-visa system.

In regards to fisheries sector, the laps conducted during 2017

concluded with (91) initiatives and projects, included three activities

such as aquaculture and fishing, value added industries, and exports.

The private sector expressed its willingness to finance these initiatives

and projects by 93%. It’s expected that such initiatives will help to raise

the contribution of fisheries sector to GDP.

As for enabling sectors, the ISFU follows-up with the following

initiatives: the National CEO program, efforts to make employment in

the private sector more attractive for Omani manpower, and the

introduction of Real Estate Investment Trust funds (REITs). In addition

to setting up an office for credit ratings, and develop invest easy

system. Upon the Royal Directives, the government has allocated RO

(86.2) million required for implementing the initiatives/projects of

Tanfeedh during 2017, under the supervision of SCP.

Fourth: Fiscal Consolidation and Fiscal Measures Taken to Address

Budget Deficit

The Government has taken a set of fiscal adjustment measures

aiming at fiscal sustainability; and a gradual fiscal adjustment policy is

pursued to avoid any negative consequences over economic and social

aspects. The most important of these measures are as follows:

Revitalizing Non-Oil Revenues:

Amending Income Tax Law.

Enhancing tax collections efficiency, and activating monitoring and

follow-up measures.

Introducing selective tax on certain commodities.

Amending fees of licenses of bringing foreign workers.

Amending some fees of civil services.

Amending rules and regulations pertaining to exemptions of tax and

customs duties.

Amending the regulations of lands allocation (land of commercial,

tourism, industrial and agricultural use)

Adjust fees of municipal services.

Rationalizing Public Spending:

Giving priority to the implementation of necessary projects that serve

economic and social objectives. Postpone the implementation of

unnecessary projects.

Postpone purchasing and replacing government vehicles and

equipment, as well as control capital expenditures.

To stop expanding in organizational structures of the ministries (such

as creating departments and directorates).

Asserting that economic efficiency, in the provision of public services

and commodities, must be a key standard. Such standard governs the

preparation of annual budgets by ministries and government units.

Raising the efficiency of administrative apparatus by expanding the use

of technologies in government transactions/operations.

Promoting the efficiency of state-owned enterprises in order to enhance

their contributions to the economy. Stressing the importance of

implementing sound corporate governance.

Reviewing and rationalizing government subsidy in order to direct such

subsidy to needy/eligible citizens.

Engaging private sector in implementing and managing some projects,

facilities, and activities. The purpose is to ease the burden on the

budget, and maintain good levels of investment that help to spur

economic growth.

Selling government assets, within privatization scheme, notably those

entail higher operating expenses or maintenance costs.

Completing the process leading to enact a Public-Private Partnership

(PPP) law.

To adhere to the approved budget allocations for the ministries and

government units, and no additional allocations shall be approved. In

case of any increase in oil revenues, the priority shall be given to

reduce the accumulated deficit.

Fifth: Fiscal Planning and Discipline:

In view of the rapid growth in public spending over the last few

years, and in order to achieve fiscal discipline and contain public

spending within sustainable levels. In this respect, the Government is

carrying out the following:

Developing a Multi-Year Budget Framework (2018-2021). This is to

include a medium-term estimate of revenues, expenditures,

deficit/surplus, and financing.

Capacity-building for tax and customs systems.

Complete the activation of a single account for the treasury in order to

help ensure effective management of liquidity and cash flow.

Completing the application of Program and Performance Budget in FY

2018 to include 18 government units.

Completing the development plan for government investments

performance. Finalizing the process of establishing a holding company

for every sector in 2018 in order to maximize the benefits of government

investments.

Supporting Public Debt Management Unit with resources and

qualified staff to assume the tasks of planning, organizing and

managing government debt. Also, to be able to review all means and

options related to public debt in light of developments in global

markets and financial position. This is in addition to monitor local

liquidity, sustainable debt level and relevant risks.

Strive to improve Oman’s credit rating.

Sixth: In conclusion:

Despite the continued economic challenges posed by geo-

economic factors since mid-2014, the State’s General Budget for FY

2018 coincides with a gradual economic recovery. The Budget

endeavours to achieve fiscal sustainability and sustainable growth, as

well as stable levels of standards of living.

As a result of the oil prices decline since mid-2014, the Government

pursued a gradual fiscal adjustment policy to tackle the implications

arising from sharp fall in revenues. This is to mitigate economic

contraction. However, the government has taken into account, during

budget process, the requirements of social and economic

development.

2018 Budget included a set of stimulus and precautionary measures

with respect to revenues and spending. The Budget was keen to

maintain the consistency and harmonization between various

allocations and general objectives of the Ninth Five-Year Development

Plan, as well as the initiatives/projects of Tanfeedh. This shall lead to

achieve the objectives of Oman Vision 2020, and pave the way for

Oman Vision 2040.

Lastly, the Ministry of Finance is honored to extend its best wishes to

His Majesty Sultan Qaboos Bin Said on the occasion of New Year

2018, praying to Allah the Almighty to grant His Majesty good health

and a long life. The Ministry also would like to congratulate the people

of Oman on the New Year 2018.

Source: Oman News Agency