MUSCAT: Groundbreaking legislation enacted by the Omani government over the past year, notably in the form of social protection and labour laws, will contribute to fiscal sustainability and intergenerational equity, according to the International Monetary Fund (IMF).

The global financial institution noted in its most recent report on the Sultanate of Oman that the two landmark laws, coupled with a proposed new Public Employment Law, will also help modernise the labour market while enhancing the appeal of jobs in the private sector.

The report lauded in particular the integration of 11 extant pension funds into a single scheme to be managed by the newly established Social Protection Fund.

“This process will help streamline administration, management, and costs of the social insurance system while ensuring greater efficiency and sustainability gains. At the same time, the costly pension formula that depends on final salary has been replaced with a full career average-based formula, which will ensure that the pension system is more financially sustainable and equitable,” the IMF said.

“This is coupled with the introduction of an actuarially fair reduction for early retirement to tighten the generous qualifying criteria for early retirement that have hampered labor market participation. In addition, the new pension scheme introduces adjustment mechanisms that are more dynamic and adaptable to changing demographic and economic conditions,” it further stated in its report.

By taking these key measures, the government has helped ensure greater medium - to long-term sustainability of the pension system. At the same time, it has preempted the potential for any fiscal burden to accrue in the future if the existing fragmented system of pension funds was to continue, it said.

“Hence, the pension system is projected to be sustainable at current contribution rates for 100 years without government financing. In addition, the envisaged expansion of government-financed social programs under the new law will help support the public buy-in of ongoing fiscal reforms, such as the phasing out of subsidies, by alleviating the impact of these reforms on the vulnerable, which will further support fiscal sustainability,” the Fund explained in its report.

Public Employment Law

Equally prospective for fiscal sustainability is a new Public Employment Law currently in the works, according to the IMF.

Designed to replace the existing Civil Service Law, the proposed Public Employment Law will supplement the new Oman Labour Law, enacted last July, in making private jobs more attractive, while also address labour market fragmentation.

Significantly, the anticipated Public Employment Law is also expected to rein in the government’s public sector wage bill, currently equivalent to around 14 per cent of Oman’s non-hydrocarbon GDP in 2022.

“As the country’s private sector expands, it is expected that more and better-quality jobs will be available in the private sector for Omanis, which will facilitate reducing the public sector workforce through natural attrition. Provisions in the forthcoming public employment law will also play a role in containing the government’s wage bill,” the Fund noted.

The Public Employment Law, the Fund points out, will contribute to a rationalisation of the public wage bill resulting in savings of 1.6 per cent of non-hydrocarbon GDP. Together with other reforms, such as the phasing out of energy subsidies through 2030, and limiting public spending growth in real terms, the non-hydrocarbon primary deficit can be further reined it.

“Together, these fiscal anchors will help delink spending decisions from oil price volatility, ensure intergenerational equity, and entrench fiscal sustainability,” the report added.

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