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The Omani budget for 2003, which was approved by Sultan Qaboos at the beginning of the year, projects total revenue of OR2.60bn ($6.75bn) and total expenditure of OR2.94bn ($7.63bn), with a deficit of OR400mn ($1.039bn). Revenues and expenditure rise by 4.4% and 2.4% respectively against budget figures for 2002, which forecast a deficit of OR380mn ($987mn – MEES, 14 January 2002). Although no closed accounts figures for 2002 are available, Omani Economy Minister Ahmad bin 'Abd al-Nabi Makki said that he expected the realized deficit for 2002 to be only OR100mn ($260mn) as a result of higher than budgeted oil revenues.

Overall, there are no dramatic changes in either expenditure or revenue predicted for 2003. Under revenues, the ‘Other Current Revenues’ category does see a rise of 15%, however, and capital repayments more than double, but remain small in absolute terms at just OR9mn ($23.4mn). The noteworthy items under expenditure are defense, which remains high at OR938mn ($2.44bn), and the government’s share in Petroleum Development Oman’s (PDO) capital expenditure, which continues to rise to OR241mn ($626mn) as the company strives to maintain production levels.

The 2003 budget projects oil revenues at almost the same level as in 2002, but is based on an oil price assumption of $20/B rather than $18/B (MEES, 20 January). Oil production at PDO (60%-owned by the Omani Government) has been declining since late 2001, but recent production estimates suggest that production is now averaging 800,000 b/d, with PDO production at 750,000 b/d (MEES, 31 March). If these levels are maintained throughout 2003 and oil prices remain above $20/B, as they have done so far this year, Omani finances will clearly be buoyed by healthy oil revenues. Oman’s economy remains overly-dependent on these receipts, which make up some 70% of government revenues, however, and while a rise in production and prices may be of benefit in the short run, it is this which has often caused much-needed structural reforms to be delayed in many of the oil-dependent Gulf economies.

The OR400mn ($1.039bn) deficit is to be financed through a combination of loans, bond issues and drawing on the State General Reserve Fund (SGRF). Loans are expected to contribute OR150mn ($390mn), which will be helped by the $61.5mn Oman is due to receive under the recently-approved US war budget (MEES, 31 March). Development bonds, OR80mn ($208mn) of which are currently under subscription (see this issue), are expected to contribute the same amount, and reserves will cover the remaining OR100mn ($260mn). 

The IMF in its 2002 Article IV consultations with Oman noted the need to adopt further revenue-enhancing measures to reduce reliance on oil revenues (MEES, 2 December 2002). In particular it noted the need to broaden the revenue base by increasing subsidized water and electricity tariffs, eliminating customs duty exemptions and tax holidays and introducing a sales tax on luxury items. Small steps towards this goal are being implemented, according to Mr Makki, who noted as the budget was announced that Oman will impose a road tax and raise petrol prices. The road tax will range from OR3 to OR8 riyals ($7.80-20.78) depending on the type of vehicle and will be imposed on every vehicle leaving the sultanate by its land borders. While this will clearly not affect the majority of domestic traffic, the rise in petrol prices will. The government plans to impose a price rise of 0.05 cents per liter in certain cities, notably the capital Muscat.

Omani Budgets, 1999-2003

(ORMn)

Source : Omani Ministry of Finance.

Tentative steps towards privatization have been taken as part of the structural reform program to support the country’s development strategy. According to the IMF, the power sector has led the government’s privatization efforts, with three plants under construction by foreign investors on a build-own-operate (BOO) basis. Management of airport services has also recently been privatized. More recently, it was announced in March that the government plans to sell its 34% stake in Oman Aviation services, which owns the national carrier Oman Air. While the sale will generate revenue for the government in itself, it is also hoped that new private ownership of this large stake in the company will help to bring the firm back to profitability after three years of losses. Mr Makki also said that government-owned Oman Flour Mills and Oman Cement Company would be partially privatized in 2003.

© Copyright MEES 2003.