Omani crude production is expected to rise 10 per cent year-on-year (YoY) to 1.1 million barrels a day (bpd) in 2022 as against 0.9 million bpd through 2021. With a conservative oil price projected in the budget of $50/barrel, actual yields based on buoyant oil price trends of recent weeks will be significantly higher than projected revenues of approximately RO 7.2 billion from the oil and gas sector in 2022 versus RO 8.2 billion recorded in 2021. The increase in production output by OPEC+ from February 2022 onwards would aid in recovery. Even so, concerns over the Omicron variant and lack of appropriate restrictions in key geographies continue to pose a threat to the growing demand.
Given the current oil price of $85/barrel, oil prices are expected to average out at $75/barrel for 2022 as per the US Energy Information Administration, 50 per cent higher than the projected price, leading to an approximate 22 per cent YoY hike in revenues from oil and gas sector to an estimate of RO 10 billion in 2022, whose proceeds are earmarked to repay debt and reduce the budget deficit of RO 1.5 billion in 2022.
The non-oil and gas sector is expected to grow by a staggering 21 per cent YoY in 2022 with expected revenue of RO 3.3 billion versus actual RO 2.8 billion in 2021. The imposition of VAT from 2021 onwards has added a new stream of revenue for the country.
In anticipation of potential volatility in oil prices, the government has reduced the quantum of expenditure by 4 per cent YoY to RO 12.1 billion in 2022 versus the actual expenditure of RO 12.6 billion in 2021. However, the projected investment expenditure has been increased to RO 2.9 billion for 2022 versus RO 2.6 billion in 2021.
Efforts to offload revenue generation from oil and gas and on-load onto various other sectors continue to take the center stage with attractive incentives and investments into 110 such productive projects through Oman Investment Authority (OIA).Although it’s been said time and again that the plan is to promote other productive sectors such as tourism, logistics, etc the OIA plans to spend 48 per cent, i.e. RO 1.4 billion of the total RO 2.9 billion on energy projects while 28 per cent (RO 802 million) on public services in 2022. Nonetheless, the funds directed towards the energy sector have shrunk in 2022 against the RO 1.6 billion spent in 2021.
With spending of RO 12.1 billion against revenue generation of RO 10.6 billion, the budget deficit for 2022 is posted at RO 1.5 billion (at an average oil price of $50/barrel). However, it still remains higher than the actual deficit recorded in 2021 of RO 1.2 billion (at an average oil price of $61/barrel). Oman has more than halved the quantum of foreign borrowing to 20 per cent in 2022 versus 42 per cent in 2021, and instead increased domestic borrowing to 55 per cent in 2022 as against 31 per cent in 2021.
The projected lower debt to GDP ratio of 64 per cent for 2022 versus 67 per cent in 2021, including the recovery of oil prices and narrowing of budget deficit from previous years has led to Fitch revising the outlook to stable while affirming the rating at BB- in December 2021.
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