Oman records $2bn budget surplus in first half of 2022 on higher energy prices

Oman recorded a budget surplus of 784 million rials ($2 billion) in the first half of this year, compared with a 457m rial deficit in the same period a year earlier, as revenue grew on the back of higher oil and gas prices.

The Gulf country's total revenue in the six months to the end of June climbed more than 54 per cent to 6.72bn rials, compared with 4.36bn rials during the same period last year, state-run Oman News Agency (ONA) reported on Sunday. “This increase is attributed to net oil revenues going up by the end of the first half of 2022 by 40.1 per cent to reach 3.187bn [rials] compared to the same period in 2021,” ONA said. "This is due to the rise in the average oil price to $87 per barrel compared to $53 per barrel in the first half of last year."

Oil production also rose to 1,037,000 barrels per day from 952,000 bpd in the same period in 2021, pushing the sultanate's oil revenue higher, the report said. Oil prices, which rose more than 67 per cent in 2021, continue to trade higher this year amid supply concerns due to Russia’s military offensive in Ukraine.

Brent, the global benchmark for two thirds of the world's oil, is up more than 20 per cent since the start of this year, after falling from a 14-year high of about $140 a barrel in March.

Sultan Haitham, Ruler of Oman, this year said the country planned to use revenue from soaring oil prices to reduce its public debt and support spending on government projects, while ensuring inflation does not affect basic commodity prices.

Oman, a relatively small crude producer compared with its Gulf neighbours, is more sensitive to oil-price swings and was hit hard by the Covid-19 pandemic, as well as the collapse in oil prices in 2014.

However, higher oil prices in 2021, along with fiscal reforms, helped to narrow government deficits. At the end of the first half of 2022, current revenue rose 34 per cent to 1.8bn rials, while tax and fees revenue jumped 71.5 per cent to 1.12bn rials.

Corporate income tax increased more than 23 per cent to 424m rials, while excise tax and value added tax (VAT) revenue amounted to 48m rials and 345m rials, respectively, during the period.

The Gulf state started levying 5 per cent VAT on most goods and services in April last year with some exemptions. Other revenue amounted to 671m rials including 392m rials in dividends received from the Oman Investment Authority at the end of the first half of 2022, the report said.

Public spending in the first six months rose 8.6 per cent to 5.94bn rials, while development expenditure increased 38 per cent to 413m rials.

About 650m rials was also allocated for additional development projects “to be added to the projects list” of the 10th Five-Year Development Plan (2021-2025) across various sectors including health, education, housing, transport and tourism.

The government also revised subsidies to reduce the implications of higher oil prices and a rise in the cost of basic food. The government allocated 314m rials for oil products subsidy and 11m rials for basic food subsidy during the January to June period.

“Oman’s liability management exercise reduces public debt by buying-back some of the sovereign bonds for less than its nominal value, repayment of high-cost loans and issuance of government sukuk in Muscat Stock Exchange at preferable rates,” the report said.

In April, S&P Global Ratings upgraded Oman’s long-term foreign and local currency sovereign credit rating to "BB-" from "B+", citing higher oil prices, rising hydrocarbon production and the government’s fiscal reform programme.

A "BB" rating is a speculative grading that implies the issuer is less vulnerable in the near term. The credit rating agency also revised Oman's outlook to stable. Oman's economy is forecast to grow 5.6 per cent this year amid higher oil prices, the International Monetary Fund says.