Oman: Bildungsausgaben 2015 steigen deutlich

A budget for driving growth in Oman

The 2015 budget comes amidst a strong reduction in global oil prices but a commitment from the Oman Government that critical projects will remain on track and that projects intended to diversify the economy, and stimulate economic growth, will continue to be supported.

This includes continuing investment at Duqm, including the planned Fishery Industries Complex, and wider aquaculture projects, as well as commencement of the Sohar – Al Buraimi section of the national railway project, and several major road projects.

It is expected that real growth for 2014 will hit 4.4% and will increase to 5% in 2015. This reflects a budgeted 5.5% growth in non-oil activities, reflecting the increasing need for infrastructure assets and utilities, for the growing population.

The budget also includes details of several significant tourism projects, including various hotel development and the Oman Convention & Exhibition Centre, in Muscat.

The banking sector is considered to be in a strong position, with net deposits of RO 500million at November 2014 (November 2013: net zero). Falling interest rates are expected to encourage investment activity. Falling global commodity prices are expected to reduce inflation to 2.0% for 2015 (2014: 2.2%; 2013: 3.1%).

While tax measures have been discussed as means to plug the gap caused by falling oil and gas revenues, the budget acknowledges other options to fund the deficit, namely privatisation of several State-owned companies in 2015 to 2017, and the potential to issue further Islamic bonds.

Total revenues to reduce by 0.9 percent

Despite the sharp downturn in oil prices at the end of 2014, the total estimated revenues for 2015 are only expected to reduce by RO 100million (or 0.9%), to RO 11.6 billion (2014: RO 11.7 billion). Actual revenues for 2014 are expected to total approximately RO 13.9billion, mainly due to a higher than budgeted oil price for a significant part of the year.

Oil and gas revenues are expected to reduce by around 5% but, at RO 9.2billion, still constitute 79% of total revenues (2014: RO 9.7billion and 83%). The 2014 budget was based on an average oil price of US-Dollar 85 per barrel. The 2015 budget does not disclose the budget price per barrel.

If we assume the cost of production remains roughly constant, the 2015 budget would reflect a price in the region of US-Dollar80, based on indicated production of 980,000 barrels per day (2014: 945,000 barrels per day).

The 2015 budget doesn't disclose a breakeven price (2014 budgeted breakeven price: US-Dollar105 per barrel). However, the overall budget deficit of RO 2.5billion represents only a slight increase on the 2014 budget deficit (of RO 1.8billion) and oil production is expected to increase slightly in 2015 (to 980,000 barrels per day). One might assume that the breakeven price would not increase significantly in 2015.

The actual realised price for 2014 has not been disclosed (2013: US-Dollar109 per barrel).

Revenues from taxes and fees projected to increase by 28.5 percent

Revenues from taxes and fees are budgeted at RO 1.3billion for 2015 (2014: RO 1.0billion), representing an increase of 28.5%.

Revenues from income tax are expected to rise by 25%, from RO 400million (2014) to RO 500million (2015). This is a significant increased by comparison to previous budgets (2014: 14% budgeted increase; 2013: 3% budgeted increase).

The increase in income tax revenue will reflect income tax collections made in 2015 but relating to 2014 and previous years and there must be an expectation that part of this increase will relate to older tax years, tax assessments for which are expected to be completed in 2015.

While there has been some debate around the introduction of new taxes and a possible increase of the income tax rate, there have been no announcements, and any changes that are introduced during the year would only be reflected in later years' tax collections.

There is a noticeable increase in revenues from non-Omani labour licences, from RO 150million (2014) to RO 245million (2015). It is expected that this reflects an increase in the labour licence fee, rather than a significant increase in the number of labour licences being issued.

There is also a 22% increase in Customs duties, from RO 270million (2014) to RO 330million. This is consistent with the planned investment in major projects, and the increase in imports that would be expected, in order to deliver these projects.

Overall expenditure increases by 4.4 percent

Overall expenditure increases by only 4.4%, to RO 14.1billion (2014: RO 13.5billion).

Education expenditure increases by 27.0%, though, to RO 1.8billion (2014: RO 1.4billion), and this is consistent with the commitment to continue investment in public and university education and the higher and technical education scholarship programs.

Notable increases can also be seen in the level of health expenditure, by 16.6% to RO 684million (2014: RO 587million), and social security, by 16.8% to RO 564million (2014: RO 483million). Social security expenditure also reflects increased pension contributions of RO 286million, an increase of 28.9% (2014: RO 222million).