Improving Public Debt Management
In the OIC Member Countries
161
4.1.14 Sultanate of Oman
A) Public Debt DynamicsUntil 2014 debt levels have been very low in the Sultanate of Oman. But following the decline
in oil prices, debt increased from 5.1% to 9.2% of GDP in 2015, according to estimates by the
central bank of Oman. The IMF projects a debt ratio of about 14% of GDP in 2015 in the World
Economic Outlook from October 2016 (WEO 2016). However, the debt ratio in Oman is still
relatively low compared to many GCC countries, allowing for some maneuverability in
sustaining the public debt levels given the implementation of fiscal adjustments. But, as per
IMF estimates, the debttoGDP ratio is likely to increase further to 24.5% in 2017. To cover
the lower oil revenues, the government sold government assets, raised loans from domestic
debt markets and accessed international debt markets. Selling government assets gives rise to
an increase in the net debttoGDP ratio (see Figure 439). The National Bank of Oman reports
contingent liabilities of $1.75 billion for 2016 (Oman Arab Bank 2016).
The decline in oil prices during the second half of 2014 gave rise to a strongly increasing
budget deficit in Oman. In 2015 the budget deficit has been estimated by the IMF to be about
16.5% of GDP. The government has implemented fiscal adjustment measures to mitigate the
impact of falling oil prices on the budget. In 2016, expenditures on categories such as wages
and benefits, subsidies, defense and capital investment by civil ministries were reduced by
about $4.5 billion or 8% of GDP. However, the decline in oil and gas revenues may largely
offset these savings. Fiscal adjustments, combined with the planned corporate income tax
reform in 2017 and the introduction of VAT in 2018, are expected to reduce the deficit in the
medium term (IMF 2016). For 2016 and 2017 deficits of about 13.5% and 10.3% of GDP are
projected. Plans to keep infrastructure investments high and pressure to increase social
expenditures, especially to combat the rather high unemployment rate, put the budget under
additional pressure (Economist 2015). Expenditures for the pension system are another
burden for the budget. Although it is planned to merge the existing seven different pension
funds into one fund, the need for further reforms and adjustments might arise in the nottoodistant future. Overall, the government’s investment priorities are currently concentrated on
five areas: tourism, fishery, mining, manufacturing and transportation. In the medium term,
the government is planning to increase revenues from tourism, to strengthen the
manufacturing base for the oil and nonoil sector, and to pass a new investment law to attract
foreign direct investment (Central Bank 2016). Privatization of stateowned entities and an
increase in publicprivatepartnerships are planned measures to relieve the state budget in the
future.