The Omani government announced an expansionary budget for the year 2022, with main consideration given to maintaining the level of spending on basic services such as education, health care, housing, and social welfare. Other considerations are reflected by measures aiming to improve the business environment and expanding public-private partnership (PPP) projects.
Apart from the planned budgetary expenditure, RO 5bn worth of investments have been planned for non-budgetary sources. OIA-led projects account for RO 2.94bn while RO 1.2bn investment is planned by Energy Development of Oman while RO 0.9bn will arise from development projects and initiatives planned via the Public Private Partnership and the Partnership for Development Programme. Overall, a considerable amount of projects has been outlined from both budgetary and non-budgetary measures which should give comfort to the investment community.
In terms of last year’s preliminary performance, total revenue is projected to have reached RO 10.9bn compared with the budgeted figure of RO 8.60bn, higher by 27 per cent. Public spending is estimated to have grown to RO 12.1bn, higher by 12 per cent as compared with 2021 Budget. However, the preliminary deficit declined to RO 1.2bn as against the budgeted deficit of RO 2.2bn for 2021.
Revenue budgeted to grow by 22.5 per cent in 2022
The Omani government expects to earn revenue of RO 10.58bn in 2022 which is 22.5 per cent higher than the budgeted revenue of 2021 and slightly lower than the actual estimated to have been achieved in 2021. The Government has budgeted a 33.6 per cent increase in its oil and gas revenue which has been budgeted at an expected oil price of USD 50/bbl. compared to USD 45/bbl budgeted for 2021. Oil and gas revenue is budgeted to touch RO 7.24bn in 2022 compared to RO 5.42bn in 2021. In terms of breakup, oil & gas constitutes majority of the revenue at 68.4 per cent while the remaining will come from non-hydrocarbon sources.
Oil & Gas Revenue
Budgeted oil revenue for 2022 is RO 4.49bn, higher by 26.5 per cent compared to the budgeted amount of RO 3.55bn in 2021. The budgeted amount is higher on account of higher budgeted oil price of USD 50/bbl. while oil production is projected to be higher as OPEC & OPEC+ led supply cuts will be restored in April 2022. We believe that the government has been very conservative with the oil price estimate and believe that the average oil price for the year 2022 will be much higher once the capital expenditure cut announced by global oil and gas giants puts a squeeze on oil supplies in the coming years. As per global agencies and research platform, oil (Brent) price is expected to average between USD 65-70/bbl. in 2022.
Gas revenue for the year 2022 has been budgeted higher by 47 per cent to RO 2.75bn compared to RO 1.87bn in 2021. Higher gas revenue is estimated largely because of improvement in gas infrastructure over the years. Government announced that after the establishment of EDO, the methodology of purchasing gas from Petroleum Development Oman’s (PDO) Block 6 was changed. Accordingly, gas purchasing cost has risen. However, this also has led to an increment in gas revenue compared to the figures of 2021. Overall, government estimates to collect 26 per cent of its revenue from gas in 2022. Government expects volume of gas to increase in 2022, and thus the estimated cost of gas transport increased by 2 per cent accordingly.
Expansionary budget with spending budgeted to grow by 11.5 per cent in 2022
Oman government has budgeted spending of RO 12.13bn for 2022 compared to RO 10.88bn in 2021, higher by 11.5 per cent when compared to last year budgeted numbers and almost at similar levels of the preliminary numbers of 2021. Current expenditure comprises (83.8 per cent of the total), investment expenditure (7.4 per cent), participation, and other expenses at 8.8 per cent. Expenditure for 2022 budget was estimated based on the following considerations:
• Expenditures of Government units, including periodical allowances and 2011 batch promotion costs, considering the financial impact of fiscal measures.
• Allocations for gas expenditures will be in accordance with the expected cost.
• Allocations of electricity subsidy, considering the subsidy reform outcomes.
• Allocating subsidies for water sector, sewage, and waste sector as per the estimates made by the relevant entities.
• Subsidies allocated for the transport sector as per estimated cost.
• Cost of public debt service in accordance with the existing loans and the planned ones over the year.
• Allocating an amount of RO 200mn for future obligations budget-item.
Other Spending Plans:
• Spending on basic services such as education, health care, housing and social welfare will be maintained. The spending on such basic services represents about 40 per cent of current spending.
• Spending on development projects is estimated at RO 900mn in 2022 budget, representing the estimated amount to be paid during the year as per the actual work in progress for the projects. The development projects have been reprioritized in terms of its urgency, cost, and economic and social return.
• The expense of purchasing and transporting gas is estimated at RO 1.6bn in the 2022 Budget, accounting for 15.7 per cent of total current expenditures.
Expenses of servicing public debt is estimated to reach RO 1.294bn in 2022, due to higher public debt and interests. Moreover, an amount of RO 200mn has been allocated in the budget to partially repay the debt.
Subsidies budgeted at RO 690mn for 2022
The total subsidies budgeted for the year 2022 amount to RO 690mn, the breakup of which is given below:
• Oil Products Subsidy: The total appropriations allocated for oil products subsidy are estimated at about RO 35mn.
• Electricity and Water subsidies: An amount of RO 575mn has been allocated for electricity and water subsidies.
Transport Subsidy: The transport sector is planned to receive a subsidy worth RO 80mn.
Budgeted deficit to drop by 31 per cent in 2022
The budget deficit for 2022 is estimated at RO 1.55bn. Almost same set of arrangements have been planned in 2022 as in earlier years to fund the deficit. This comes in line with the guidelines set out by the government to maintain sovereign reserve funds, and to rely upon borrowing, notably external borrowing, to finance the deficit. Foreign and local borrowing of RO 1.15bn would be arranged along with RO 0.4bn would be taken from reserves. Government was practical in taking up more than required borrowings in 2020/21 as it took into account the lower interest rates. Going forward, interest rates are expected to pick up as outlined by US Federal Reserve which expects rates to rise three times in 2022. Expenses of servicing public debt are estimated to reach RO 1.294bn in 2022. Moreover, an amount of RO 200mn has been allocated in the budget to partially repay the debt. [Courtesy: U-Capital]
