Muscat - Fiscal-policy reforms aimed at diversifying, broadening, and rationalising the sources of Oman's government revenues need to be considered a matter of priority, according to the Central Bank of Oman (CBO).
In its annual report released on Wednesday, the CBO said that Oman's continued expansionary fiscal policy could lead to sustainability challenges in the long run given the finite nature of the country's resources.
The report said Oman's fiscal situation has improved considerably in the last three years. It added that in the near term, with crude oil prices in the international markets expected to remain at a higher level, the overall fiscal situation is expected to remain strong.
Echoing views in the recent International Monetary Fund's report on Oman, the CBO said, "It has to be noted that increases in current expenditure are harder to reverse, which could lead to fiscal vulnerability when the oil prices fall. There is a need to diversify the sources of revenue away from the hydrocarbon sector. There is substantial scope to enhance non-hydrocarbon revenues which could be explored."
The report noted that there could be a case for reviewing the exemptions in various taxes and the new sources of revenue for the government.
"As regards government expenditure, with surging oil revenues, spending of the government, particularly current expenditure, increased sharply responding to social pressures and subsequently large wage bills and unemployment benefits for job seekers.
"It is expected that the government will be able to pursue an expansionary fiscal policy to sustain the current momentum in growth. The main risks that could affect the growth prospects are further slowdown in global growth and substantial fall in oil prices," the report said.
The CBO said that during the plan period 2011- 2015, the non-oil activities are expected to grow by an annual rate of ten per cent at current prices and six per cent at constant prices. "Increasing the role of private sector in the national economy by stimulating domestic and foreign private investment is the key to achieve this objective."
The report said that the share of oil in total revenues increased slightly to 74.1 per cent in 2012 from 73.4 per cent in 2011.
"Based on the government revenue indicators, it is evident, as had been the case in previous years that the extent of government revenues continued to significantly depend on proceeds from crude oil which in turn tend to be subjected to fluctuating prices in the global market," the central bank report added.
© Muscat Daily 2013
