Oman Budget 2022: Key Highlights

In detail

Snapshot of the key features 

Oman budget 2022

Royal Decree No.1/2022 was issued on 1 January 2022, and published in the Official Gazette dated 2 January 2022, promulgating the State’s Budget for the year 2022. Below are the key features of the 2022 budget :

Oman is projecting a fiscal deficit of OMR 1.5 billion in 2022, down 32% year-on-year, as growth in state spending is outpaced by a stronger growth in revenues on the back of projected higher oil and gas receipts.

Revenues and expenditures were estimated, taking into account the framework of the medium-term fiscal plan (the 10th Five-Year Development Plan (2021-2025)) impacted by such factors as changes in oil price estimates, the ongoing uncertainty arising from dealing with the Covid-19 pandemics and the establishment of the Oman Energy Development Company. Also important in determining the budget are the set of foundations and assumptions that aim in their entirety to ensure the continuity of providing public and basic services such as education, health, housing and social welfare, alongside improving the business environment and stimulating investment.

Oil and gas revenues are forecasted at around OMR 7.2 billion, or 68% of overall receipts, up from OMR 5.4 billion in 2021, when it made up 63% of the total. Oman's projected revenue figures are based on an assumed oil price of $50 per barrel, up from an expectation of $45 per barrel in the 2021 budget. The projected average oil price seems to be on a conservative basis considering that the current oil prices are relatively higher. Oman's fiscal breakeven oil price needed to balance its 2022 budget will be $67 per barrel, compared with $74 per barrel in 2021. 

The uptick in expected oil and gas revenues come as a result of both higher oil prices and higher oil production, in line with the ongoing Opec+ production restraint deal. Oman has seen its production ramp up in a stepwise manner since the middle of last year as the Opec+ group gradually restores all the oil it took off the market in May 2020 in response to the Covid-19-induced collapse in global oil demand.

Overview

Oman Budget 2022 (RD 1/2021)

The FY 2022 Oman budget represents the second year of the Tenth Five-Year Development Plan (2021-2025) (“the 10th FDP”), which paves the way to implement Oman Vision 2040 development objectives. The budget was prepared in context of similar themes to the previous year, in that financial and economic challenges resulting from the COVID-19 pandemic persist, and the Sultanate continues to be committed to the agreement of the Petroleum Exporting Countries (OPEC +) in limiting the production of oil to 1,055m barrels a day alongside ongoing economic and and geopolitical challenges. 

The Sultanate had good reason to be cautiously optimistic in preparing the 2022 budget, as 2021 afforded a number of positives that would have factored into the budget, such as:

• the world economy slowly recovering from the initial impact of the Covid-19 pandemic, with the IMF projecting a medium-term global economic growth of 3.3% and forecasting Oman’s  GDP to grow around 2.5% in 2021 and about 3% average growth over the medium term;

• Oman’s actual 2021 revenues exceeding budget, and therefore strengthening the Sultanate’s efforts to meet its Medium-Term Fiscal Plan (2020-2024) of reducing its deficit;

• VAT and Excise Taxes “going live” in 2021, which allowed Oman to include a new revenue stream in the 2022 budget, and to begin reaping the benefits of implementing the new fiscal policies; and

• the Sultanate’s credit outlook having improved across the three main agencies.

As such, while the 2022 General Budget is very much shaped by Oman’s Vision 2040 priorities such as achieving fiscal sustainability and reducing the ratio of the size of public debt to GD, it does so already having hit initial milestones under the short- and medium- terms plans underpinning Vision 2040.

2022 Budget Objectives

The State’s General Budget for 2022 is consistent with the objectives of the 10th FDP, as the general budget aims to achieve the following set of economic and social development goals:

1) Encouraging investment and pushing the private sector to lead and revitalise the economic sectors, and to expand partnership projects with the private sector.

2) Maintaining safe and sustainable levels of public spending through continued implementation of the medium-term financial plan initiatives.

3) Continuing efforts to maintain balanced financial stability and intensifying efforts to support and stimulate economic activity without prejudice to the sustainability of budget indicators and public debt.

4) Giving priority to the implementation of projects that serve the economic and social objectives related to the productive sectors, especially the sectors of economic diversification, and delaying the implementation of non-urgent projects, and giving great importance in return for the operation of projects that are completed during the year.

5) Providing the necessary incentives to encourage the establishment of private sector companies (especially public joint stocks companies) to serve development and provide the necessary opportunities for investment.

6) Continuing work to improve the credit rating of the Sultanate of Oman and increase investor confidence.

Oman’s 2022 budget was build on the basis of $50 per barrel and the Ministry of Finance confirmed that a precautious approach was taken once again in this regard. This is especially in consideration of the ongoing uncertainty of the oil price scene in light of the new Covid-19 variants, and the approaching date of the end of the OPEC+ agreement in April 2022. This is despite the estimates of the International Energy Agency, the International Monetary Fund and credit rating agencies (Fitch, Moody's, Standard & Poor's, and other global agencies) that put the average price during 2022 between $53 and $84.

Revenue is budgeted to increase by 23% to OMR 10.6 billion (FY21 OMR 8.6 billion), with oil and gas revenue representing c.68% (FY21 OMR 7.2 billion). The Ministry of Finance confirmed in a statement that, should revenues in excess of those budgeted at $50 per barrel be achieved, any excess will be utilised to further reduce the deficit and repay loans.

Oman Budget 2022 (RD 1/2022)

The Sultanate also foresees a rise in non-oil revenue to around OMR 3.3 billion in 2022, up 6% from around OMR 3.2 billion in 2021 budget. This continued growth in non-oil revenues supports Oman's objective of reducing its dependency on oil and gas revenues.

The  budget included higher revenues from local taxes & fees at OMR 1,759 million (FY21 OMR 1,622 million). VAT and Excise Tax are expected to contribute OMR 450 million and OMR 85 million of these revenues, respectively. Customs taxes are expected to contribute OMR 260 million in revenues.

The forecasted revenue from corporate tax is estimated at OMR 465 million (FY21 OMR 400 million) with an increase of 17% in comparison to taxes budgeted to be collected in year 2021. This is mainly due to an effective vaccine rollout and other containment measures have allowed the economy to open, while higher international oil prices have supported a broader recovery.  

One of the most important pillars of the Sultanate's general budget for 2022 is maintaining safe and sustainable levels of public spending, while continuing to raise non-oil revenue contributions, and giving priority to the implementation of projects related to the productive sectors and others. The Sultanate’s general budget 2022 aims to spend 40% of the total current spending on basic services, which will be distributed as follows: 17% on education, 7% on social security and welfare, 11% on health and 5% on housing.

Government expenditure, meanwhile, will rise to OMR 12.1 billion in the 2022 budget, up 11% from its 2021 estimates. Actual investment expenditures represents about 24% of total expenditure or OMR 2.9 billion. A total of 110 investment projects will be implemented and developed in 2021-2022, and it is expected that more projects are to come from the series of deals signed by a raft of state-owned and private Omani firms with Saudi Arabian companies during the visit by the Saudi Crown Prince His Royal Highness Mohammed bin Salman to the Sultanate.

In addition, the Government appears keen to outsource other services and projects to the private sector to further ease expenditure, with the aim of bringing improved efficiency and cost savings.

According to the estimates of the Ministry of Economy, it is expected that the total Gross Domestic Product “GDP” at current prices by the end of 2021 will reach about OMR 30 billion.

Key developments during FY 2021

In 2021, the world continued to face a global health crisis with new COVID-19 variants, alongside fluctuations in oil prices during the year. These two factors continued to result in severe economic impact and business disruption worldwide, which is expected to take significant amount of time to recover. Like the vast majority of countries, Oman attempted to control the spread of COVID-19 by enforcing phased lockdowns, travel restrictions, and temporary closure of businesses, which in turn caused major slowdown of the economic growth.

Despite of the economic downturn caused by the pandemic, 2021 witnessed massive changes to the business, legal, and tax frameworks in the country, forming a continuation of development steps, set forth in the previous years, with the aim of achieving, among other objectives,  fiscal sustainability & economy diversification.

To read more on the summary of the key economic, tax and other development that were unfolded during the year 2021 click the button below.

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