Oman faces larger than expected budget deficit this year amid ongoing oil slump

Oman is on course to run a bigger than expected budget deficit this year, as declining global energy prices hit the country’s finances.

The country planned its budget for this year based on its expectation of an oil price of $75 per barrel, but average prices this year have been about $55 per barrel.

Oman ran a US$4.98 billion deficit in the first half of the year, equivalent to about 6.1 per cent of its GDP, according to data from its finance ministry.

The country now plans to run a deficit of about $5.86bn or 7.8 per cent of GDP this year – but it will run a larger deficit unless spending falls further, or energy revenues are higher than expected in the second half of the year.

The credit ratings agency Standard and Poor’s said Oman and Bahrain were the Arabian Gulf states most vulnerable to a prolonged slump in oil prices, citing their relatively low fiscal reserves and lack of economic diversification.

Oman has about 21 years’ worth of hydrocarbon reserves, compared to 66 years for Saudi Arabia and 81 years for the UAE, according to BP’s statistical review of energy.

The country’s State General Reserve Fund, its sovereign wealth fund, has assets of about $13bn, significantly less than those of its wealthier Arabian Gulf neighbours.

In May, Oman said it would issue $500m in Islamic bonds for private placements, but did not provide further details.

The IMF said that Oman had to enact major changes to its regime of grants and subsidies for the country to weather the oil slump. Were Oman to fully eliminate energy subsidies, it would save $940m this year – equivalent to 1.1 per cent of GDP. The IMF estimates Oman’s per capita spending on energy subsidies at $221.95.

“The urgency for implementing fiscal reforms has increased,” Ananthakrishnan Prasad, the IMF’s mission chief to Oman, said in May.

“Previously there was a long-term fiscal sustainability issue. Now there’s the additional challenge of financing double-digit fiscal deficits as a share of GDP over the medium term.

Follow The National’s Business section on Twitter


Share This Post