Oman will continue to invest in strengthening and diversifying its economy despite the damage to its state finances from low oil prices, the Central Bank of Oman’s executive president has told a Reuters summit.
Cheap oil has slashed the government’s revenues, pushing it deep into the red; it posted a budget deficit of 2.68 billion rials in the first eight months of this year, swinging from a 205.7 million rial surplus a year earlier.
That puts the sultanate on track for a massive deficit of over 15 per cent of gross domestic product this year. Oman lacks the big fiscal reserves of its wealthy neighbours; assets in its two biggest sovereign wealth funds are estimated to total around US$20bn.
But Hamood Sangour Al Zadjali told the Reuters Middle East Investment Summit that Oman would press ahead with ambitious, and costly, efforts to expand its industrial base and create jobs. Industrial and infrastructure projects under construction or planning will cost billions of dollars.
“In the milieu of lower oil prices, the key goal before the government and the CBO (central bank) is to strengthen the growth process and give a fillip to the diversification process,” Mr Zadjali said.
“Our previous experiences suggest that the resilience and inner strength of the Omani economy will tide over lower oil prices and sustain its growth process.”
Economists and business executives believe that to save money, the government may be on the verge of cutting petrol, natural gas and electricity price subsidies which the International Monetary Fund estimates cost over $7bn annually. It has also been considering tax increases.
“The government is working hard to reduce expenditure and increase revenues through various means. They have directed the ministries to cap their expenditure at a certain level, or to cut the expenditures by a certain percentage,” Zadjali said.
“On the revenues side, the government is considering taking some of the load off by cutting subsidies, and increasing some of the fees.”
The government has been expanding debt issues to cover its deficit, and this month received orders of 336m rials for its first issue of sovereign Islamic bonds, worth 200m rials.
Mr Zadjali said such issues could be conducted without straining liquidity in the local banking system because they were open to banks from elsewhere in the region, and could attract back to the country some deposits held by Omanis abroad.
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