Oman subsidy spending to fall 64%, says World Bank

Date

8/3/2016 12:55:46 AM

(MENAFN- Muscat Daily) Muscat-

Oman's subsidy bill is expected to fall by 64 per cent this year with the government adopting 'bold steps' to increase revenues from non-oil sources, the World bank said.

'The Oman government's subsidy spending is expected to fall by 64 per cent in 2016, as local fuel prices are brought in line with global prices,' the World Bank said in a report released last week.

The deregulation of fuel prices in the sultanate began in mid-January 2016, with diesel and petrol prices increasing by up to 33 per cent. Fuel prices are revised on a monthly basis.

Oman's state budget for 2016 has set a subsidy tab of RO400mn, a big drop from RO1.1bn approved last year.

Due to a slump in oil prices, the World Bank estimates, Oman lost as much as US$10bn in revenues in 2015, and it projects a deficit of 16.8 per cent of the country's GDP in 2016.

Shanta Devarajan

The multilateral lender said the Oman government has taken 'bold steps' to increase revenues from non-oil sources. 'These include turning to debt markets for the first time (it sold US$2.5bn in bonds on June 8) and taking on some reforms such as subsidy cuts, reduced benefits for public sector workers and increased fees. Furthermore, they introduced a royalty on telecom operators, a 'fair tax' on liquefied natural gas (LNG) exports, and an increase in royalties paid for mineral exploitation,' it said.

The World Bank also hailed the government's measures to boost non-hydrocarbon revenue by revising electricity and water tariffs for commercial and industrial users and increasing fees for some government services.

It estimates that GCC countries lost US$157bn in oil revenues last year and is expected to lose another US$100bn this year.

Persistently low oil prices are bringing change to MENA economies, the report said, adding that the governments in the region are taking measures long considered impossible such as imposing taxes, eliminating fuel subsidies, and reducing public sector jobs and salaries.

'Governments in the region are tightening their belts, and introducing some bold measures that are expected to transform the old social contract, where the state provided citizens with fuel and food subsidies and public-sector jobs, to a new one where the state promotes private-sector job creation and empowers citizens to make their own consumption choices,' said Shanta Devarajan, World Bank's chief economist for the MENA region.

The GCC countries have been using their reserves, turning to debt markets, and cutting spending to deal with cheap oil, the report said.

'But more actions are needed since oil prices will be low for some time. Some of these countries have been taking tough measures or planning to reform the public sector which could ultimately change their economies,' it added.

The World Bank last week raised its 2016 forecast for crude oil prices to US$43 per barrel from US$41 due to supply outages and robust demand in the second quarter.

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