COVID-19 on OMAN

ECONOMIC IMPACT AND ANALYSIS

Mridul Saraf | Economics | 30/04/2020

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 Index

1. History of Oman……………………………………………………………………………………….3
2. Overview of Oman’s Economy………………………………………………………….………5
3. Oman and Oil……………………………………………………………………………………….…..8
4. Upcoming projects and recent re-forms…………………………………………………..10
5. Economy before COVID………………………………………………………………………….16
6. Economy in COVID………………………………………………………………………………….19
7. Mitigation and future………………………………………………………………………………..23
8. References………………………………………………………………………………………………….27

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 1. History of Oman

Oman's history tells stories of heroism, courage, wisdom, patriotism, love and devotion to
homeland. This brings us closer to understanding the richness of the Omani cultural
experience which has contributed to the building of modern Oman.
Oman’s strategic location has played a major role in many campaigns and regional conflicts
in this region. Oman overlooks the Arabian Sea, the Sea of Oman and the Arabian Gulf. It
also controls the Strait of Hormuz, which is one of the most important facilities in the
region, linking the Sea of Oman with the Arabian Gulf. The Strait of Hormuz is a gateway
to all ships coming from the Indian Ocean and Arabian Sea.
Al Wattih in Muscat Governorate is one of the first inhabited cities. Modern archaeological
discoveries suggest that humans settled in it during the Stone Age, i.e. more than 10,000
years ago.
The Babylonians and the Assyrians settled in Oman because they wanted to control the
trade route that linked Asia to the shores of the Mediterranean Sea.

With the spread of Islam, and Mazin Bin Gadhubah joining Islam as the first person in
Oman and his emigration to Medina to meet the Prophet, Peace be upon Him, the first
mosque was built in Oman. This is Al Midhmar Mosque that still stands to this day in
Wilayt Samail . These events paved the way for the two kings of Oman at that time, Jua’fer
and Abd Ibni Al Jalandi, to enter Islam wholeheartedly and with utter conviction after
receiving a letter from the Prophet, Peace be upon Him. A Hadith mentions that the
Prophet, Peace be upon Him, said “God’s mercy be on the people of Al Ghubaira” (i.e. the
people of Oman). “They have believed in me although they had not seen me”. Also stated
in the sermon our Master Abu Bakr Al-Sidiq, the caliph of the Prophet, Peace be upon
Him, to the people of Oman: “People of Oman you, you have entered Islam voluntarily
although the Prophet has not come to your land on foot or on horse. You have not opposed
him as other Arabs opposed him, and you have not called for separation or dispersion. May
God unite you in benevolence.”

With the election of Ibn Masood, the first imam, in 751 AD, the Imamate era began in
Oman and lasted four centuries until 1154. Several attempts were made to restore the rule
of the Imamate in Oman in the mid-fifteenth century, but did not succeed.
During the period 1498-1507 AD, the Portuguese tried to control Oman. Omani history
tells the story of the Omani people who expelled the Portuguese with their struggle and
heroism. Nasser bin Murshid was elected Imam in 1624.
Because of the coastal location of Oman, the Omani navy occupied a leading position
regionally. This sparked the ire of the Portuguese, who did not forget their devastating
defeat. Fierce battles erupted between the Portuguese Navy (which had made India its base
after the liberation of Oman) and the strong Omani navy. After a fierce battle, the Omani
fleet was able to defeat the Portuguese fleet.

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In 1698, the Omani Empire then expanded to include the cities of the African east coast,
stretching from Mombasa to Kila, Zanzibar, Pemba and Bata. Mozambique remained under
Portuguese rule until the twentieth century.

Oman had been the target of a number of attempts by the Persians to invade its territory,
but the steadfastness and heroism of the Omanis were successfully combined to defeat the
occupier. The invaders were defeated, underscoring the exploits of Omani heroes in
defending their lands. This great victory was achieved at the hands of Imam Ahmed bin
Saeed Al Busaidi, who defeated the Persians and was elected imam.
With the advent of 1970 came the dawn of a modern renaissance in the Sultanate, with the
beginning of the prosperous era of His Majesty Sultan Qaboos bin Said, may God protect
him.

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2.Overview of Oman’s economy

The Sultanate of Oman has had extraordinary economic development since 2004, primarily
due to the exploitation of its oil reserves. However, growth rates declined in 2019 to 0.5%
as oil production remains capped by the OPEC production cut agreement, but also a
slowdown in household consumption. Oman has a relatively healthy economic and
financial situation. Its government debt (estimated at 38.9% in 2019) is small compared to
its gold and foreign currency reserves, although is expected to grow in the coming years.

The public deficit (5.3% of GDP in 2019) has contracted significantly in the last few years,
following a recovery in commodity prices and austerity measures taken by the government
(which abolished electricity subsidies for businesses and state agencies and is planning to
reduce hiring and freeze the salaries of civil servants). However, the sultanate’s habit to
frequently resort to international markets for its financing needs could be risky and several
rating agencies have degraded the country's sovereign rating. To decrease its dependence
on raw materials, Oman has established reforms to liberalize and diversify its economy in
the framework of its “2040 Vision Plan”, which aims to increase investment in the tourism,
financial services and port activity sectors.
Such reforms are slowly paying off, as confirmed by the fact that the non-oil and gas
economy now accounts for more than two-thirds of GDP. Inflation fell to 0.1% in 2019,
but was expected to pick up to 1% in 2020 and 3.4% in 2021 (April 2020 World Economic
Outlook IMF), due to inflationary pressures caused by the introduction of VAT (the
Government plans to implement it in 2021, after several postponements) and further cuts
to subsidies on fuels. But, due to the COVID-19 outbreak, the world oil demand has
contracted significantly and shows no signs of returning to pre-pandemic 2020 Q1 levels.
This has resulted in a huge slump in revenues for the sultanate due to it accounting for 70-
75% of its GDP pre-pandemic by oil and gas revenues. This fall in revenue resulted in
contraction in the expected government spending by OMR 1 billion ($ 2.6 billion).

According to the World Bank, the unemployment rate decreased to 3% in 2019, but one of
Oman's most pressing internal issues is an extremely high youth unemployment. Around
half of Oman's youth work force is unemployed. Besides, two million jobs are taken by
migrant workers (National Centre for Statistics Oman). During the last three years
nationwide protests were made over unemployment and income inequality (the World
Inequality Database estimates that the 10% of the population with higher income controls
more than 60% of national wealth), and the government introduced initiatives to provide
25,000 new jobs in private sector to reduce dependence of foreign workers. The focus on
Omanization has forced all companies in the sultanate to keep 70% of their workforce
Omani. But, During the COVID-19 pandemic, many companies in Oman have been forced
to fire expatriates due to the minimum Omanization rules they are forced to comply with.

Oman has a workforce of 2.7 million out of its 4.3 million population, of whom about 43%
are expatriates (World Bank). Prior to the discovery of oil fields, Oman was virtually a
subsistence economy that was entirely based on agriculture and fisheries. But since the past

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5 to 7 years, the latter contributes only marginally to GDP (2.2%) and employs 4.6% of the
workforce (World Bank, 2018). Agricultural production is mainly composed of dates,
limes, bananas, and owing to the lack of fertile land the country needs to import from
international markets. Nevertheless, Oman is seeking to achieve food self-sufficiency
(which stands at 41.3% according to the latest survey of the Public Authority for Stores
and Food Reserve of Oman) and the Omani Ministry of Agriculture and Fisheries took
several initiatives regarding agriculture, fisheries, research and improvement of supply
chain as part of the National Food Security Strategy 2010-2020.

Oman’s GDP per sector is shown by the pie chart below:

Oman’s GDP per year is shown on the graph below: Data from World Bank

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Standard & Poor's credit rating for Oman stands at BB- with negative outlook. Moody's
credit rating for Oman was last set at Ba2 with under review outlook. Fitch's credit rating
for Oman was last reported at BB with a negative outlook. In general, a credit rating is used
by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness
of Oman thus having a big impact on the country's borrowing costs. This page includes the
government debt credit rating for Oman as reported by major credit rating agencies

The investment ratings symbolize a weak, but growing economy for the investors to invest
in. Oman’s economy has been struggling since the collapse of oil prices in 2014, forcing
the government to join other GCC nations in tapping international debt markets to stop
budget shortfalls. Oman's creditworthiness is constrained mostly due to the kingdom's
heavy reliance on the hydrocarbon sector and that the economy is subject to global oil
industry dynamics, which has shown its dramatic effects during the COVID-19 pandemic.
Where the industry demands fell dramatically, and oil prices went negative. Resulting the
government to severely cut its public expenditure.

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3.Oman and Oil
Oman is a significant oil and gas producer and exporter and relies heavily on revenue from
hydrocarbon exports. It is not a member of OPEC, though it has joined other independent
oil producers in the alliance with OPEC, known as OPEC+, in efforts to stabilize the oil
market. It is a member of the Gulf Cooperation Council, though it tends to pursue an
independent foreign policy.
Oman today produces close to 1 million barrels per day of crude oil and condensates – a
very light type of crude oil that is derived from gas production. After steep production
declines earlier in the decade, it was able to restore production to 1 mb/d by applying
advanced techniques and offering increasingly attractive contracts to foreign oil
companies, many of which have been loyal partners to the sultanate for decades link the
Dutch Shell and up recently Eni.
Oman’s oil fields are geologically challenging and require enhanced recovery techniques
to lift heavy oil. This makes production costs higher in Oman than in other Gulf states.
Some 20% of its total gas production is reinjected into oil fields to extract heavy oil,
according to Oman’s National Centre for Statistics and Information.
Because of its high dependence on oil and gas revenue, which generates between 70% and
85% of government revenue depending on oil prices, the country is exposed to oil market
volatility.
Like other oil producers in the Gulf Arab region, Oman’s budget deficit widened in 2016
following the oil price collapse of 2014-15, reporting a deficit of $13.8 billion in 2016.
This led the government to reduce energy subsidies (though domestic energy prices remain
low by international standards). According to the National Centre for Statistics and
Information, the deficit fell to $6.9 billion in 2018, down from $9.8 billion in 2017. But
the fact that the government is running a deficit – despite oil prices in 2018 averaging above
the $50 per barrel on which it calculated revenue for the year – shows that Oman remains
heavily dependent on oil revenue. The Omani oil sector benefits from partnerships with
major international oil producers such as Conoco, Shell, Total, BP, and, more recently, Eni.
The largest oil producers in Oman are the Petroleum Development of Oman (PDO). It is
estimated that by 2025, more than 23% of PDO’s production will come from enhanced oil
recovery projects using a variety of techniques from polymer injection to using solar power
to produce steam for reinjection. Oman is home to the world’s largest solar power project
designed to extract oil from the Amal oil field.
Asian entrants into the Omani upstream oil sector reflect the increased trade ties between
the sultanate and the region. Asia is the biggest market for Omani crude oil exports: China
is the largest importer of Omani crude and India is the second largest.
Oman has an export advantage over its Gulf neighbours due to its export terminals which
lie outside the Strait of Hormuz, the congested oil waterway that Iran has threatened to shut
down repeatedly in response to sanctions against its oil sector. The sultanate plans to take
advantage of its strategic location by building a new oil refinery and storage facilities at its
Arabian Sea port of Duqm (currently having investment of over $15 billion, majority of
which is by Oman Oil Company)
But Oman is also a gas producer and exporter. PDO produces nearly all of Oman’s natural
gas, some of which is exported as LNG mainly to Asia. Most of the gas is consumed

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domestically for oil production, electricity generation, and as feedstock for the
petrochemical industry. PDO accounts for nearly all Oman’s current gas production, which
stands at 110 million cubic meters per day.
Oman is also investing in a number of infrastructure projects to boost storage facilities
while also preparing to meet demand for lower sulphur fuel oil once new strict bunker
specifications come into effect in 2020.
Due to sudden slash in Oil prices all around the world due to the drastic fall in global
demand, the revenues of the sultanate through oil and gas production slashed to an all
time low in the second quarter. Where the average mark was around $32/bbl. This put the
governate finances in trouble which gets 70-75% if its budgeted revenues from the oil
and gas sector.

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4. Upcoming projects and recent reforms

Attracting Foreign Direct Investment (FDI), has been one of Oman’s main objectives.
There has been a lot of investment in the economy in the past 3 years. Mainly due to high
oil prices and stability in the economy.
Some recent projects successful by local investment and FDI are listed below:

China state grid corporation investment in Al Maha

Oman’s Nama Holding, the holding company of state-owned electricity network

companies, signed agreements pertaining to the sale of 49 per cent shares of Oman
Electricity Transmission Company (OETC) to the State Grid International Development
Ltd. (SGID), a wholly-owned subsidiary of the State Grid Corporation of China (SGCC).

Through this privatization program, Nama Holding will support the government’s
objectives of attracting foreign direct investments into the country and promoting private
sector participation as part of the wider nation-building process. The objective is also to
harness best-in-class technologies and technical & administrative expertise in these
companies, which will result in human resource development, improved customer
satisfaction and a more efficient resource utilization. This will, in turn, translate into a more
optimized economic cost per unit of electricity supplied over time and will hence benefit
the economy significantly in the prosperous years to come.

Duqm Project

According to the report from the Special Economic Zone Authority at Duqm (SEZAD),
has shown that investments from private bodies reached $14.186 billion (about OMR 5.5
billion) in 2018, the highest amount of money that has been allocated to Duqm in the last
five years.
“Investments for the China-Oman Industrial Park have been calculated and confirmed in
the form of 10 projects, with an investment amounting to $3.8 billion,” SEZAD said in the
report. “The total value of the Duqm refinery has been calculated to amount to $5.7 billion.”
A majority of the investment is in the form of industrial projects that will see $10.49 billion
committed to them, while tourism has an investment of $3.018 billion. A further $380.6
million will go towards commercial building projects such as office blocks, while $267
million has been allocated for commercial enterprises such as stores. Another $2.3 billion
methanol venture to a $406 million-power project.

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In total, 73.98 per cent of investment funds from the private sector will go towards
industrial projects, and another 21.28 per cent will be earmarked for tourism development.

Copper Mining in Al Mudhaibi

Large-scale copper mining is set to take off in the Sultanate with the joint venture Al
Hadeetha Resources set to develop a major copper deposit at Washihi-Mazzaza in Al
Mudhaibi Wilayat. It targets the commercialisation of an estimated 16 million tonnes of
copper ore — billed as the largest single copper resource in the Sultanate to date. The
project includes plans for a 1 million tonnes per annum copper concentration plant with an
initial 10-year mine life. This will help reduce the unemployment in the sultanate and help
increase in GDP.

Oman Food Investment Holding projects

Oman Food Investment Holding Company (OFIC), the wholly government-owned food
sector investment, is spearheading the development of projects in dairy, poultry, livestock
farming, red meat production, agro production and processing, dates and date processing,
and other foodstuff processing schemes. Investments are estimated to total $1 billion and
will go a long way in securing Oman’s food requirements. Mazoon Dairy, the flagship
venture of OFIC, was launched late last year. Some of this expansion will help make the
sultanate's food supply and stock more self-sustaining and increase the possibility of
export of these products to its neighbouring countries and international markets.

Madinat Al Irfan Project

Conceived as a new downtown for the capital region, Madinat Al Irfan will come up in
multiple phases on prime real estate in Muscat. A joint venture between Omran and Dubai’s
Majid Al Futtaim (MAF) will pave the way for investments estimated at $13 billion in
commercial, residential, education, healthcare, entertainment, and hospitality
developments. Which will help the sultanate increase its GDP and have economic growth
in the years to come.

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Khazaen Economic City

Oman’s first integrated logistics city is coming up on a 52 sq km site near Barka, just off
the Batinah Expressway. It will serve as Oman’s northern logistics hub, connecting a
number of key development projects across the Sultanate via its extensive dry port
facilities. Khazaen will also host dedicated areas for commercial, industrial, and residential
use, whilst also providing the residents of the wider region with new health, education and
leisure facilities. Therefore enabling future expansion and better utilization of resources of
the economy.

Ras Markaz Crude Oil Storage Terminal

Oman Tank Terminal Company LLC (OTTCO), a subsidiary of OQ (formerly Oman Oil
and Orpic Group), is setting up a major crude oil Storage Terminal at Ras Markaz near
Duqm. Total investment in Phase 1 of the storage facility, which at full build will rank
among the largest of its kind in the world, is pegged at $1.76 billion. At the heart of the
Ras Markaz Crude Oil Terminal project is a vision to position the Sultanate as an
international hub for storage of crudes and petroleum derivatives, leveraging Oman’s
strategic geographical location on the Indian Ocean. The project also creates an additional
port for crude exports. Helping the sultanate to have a higher power in this industry.

Salalah LPG Project

Salalah LPG SFZ Co LLC, a wholly owned subsidiary of Oman Gas Company (OGC), is
investing around $830 million in a 300,000 tonnes per annum of LPG plant in Salalah Free
Zone. It includes a high-tech extraction plant with a nameplate capacity to process 9 million
standard cubic metres of gas per day. This will increase the production of LPG in the
sultanate and cater to higher energy demand by the new projects underway.

Mina Sultan Qaboos Waterfront

UAE based real estate developer Damac has been selected by the Government of Oman to
develop Mina Al Sultan Qaboos into a world-class, waterfront mixed-use destination
through a joint venture with Omran, the government’s investment, growth and
development arm.

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‘Mina Al Sultan Qaboos Waterfront’ is being redeveloped into a $ 2 billion integrated
tourist port and lifestyle destination that includes hotels, residences, as well as a dining,
retail and leisure offering. Increasing tourist attractions in the sultanate and pushing this
industry to grow.

Liwa Plastics Industries Complex

The Liwa Plastics Industries Complex (LPIC), a signature investment of OQ (formerly

Oman Oil & Orpic Group), is a transformational project that will improve the Group’s
product mix and business model, increase its profit and support the development of a
downstream plastics industry in Oman. Located at Sohar Port, the $6.4 billion project has
been launched last year. This will increase the market capitalisation on the stock market
and hence increase GDP.

Important updates and reforms in the economy

 In the first quarter of 2019, the World Bank raised its forecasts for Oman real GDP
growth in 2019 to 3.4% compared with earlier estimates of 2.5%.
 Telecommunications Regulatory Authority (TRA) finalized renewal terms of the
first-class mobile telecom license of Omantel and Ooredoo Oman.
 CBO issued Government Development Bonds (No. 60, 61, 62)
 CMA announced suspension of tax on dividends for all investors, removal of tax
on dividends for foreigners changed the investor sentiments and market started
propping up on foreign investment.
 TRA granted Omantel and Ooredoo – the right to use a 100MHz 5G spectrum.
 Foreign investors' presence in the market at the start of the quarter.

Indirect tax reforms

Oman and its neighboring GCC member states have long been under pressure to accelerate
fiscal reforms to decrease reliance on hydrocarbon revenues. Key components of these
reforms include the introduction of VAT and excise taxes. Progress has been made by GCC
wide agreements for both taxes and domestic implementation by some GCC member states.

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Excise tax

The introduction of excise tax (commonly also referred to as 'selective' or 'sin' tax) in Oman
was widely expected to be implemented during 2019, and has now been confirmed in the
FY19 budget. In addition to levying the tax on tobacco, energy drinks and certain
carbonated drinks, it has been reported that the tax may also extend to alcohol and certain
other "luxury" goods . Businesses involved in the importation and / or domestic production
of such goods are advised to seek guidance on the anticipated excise tax compliance
framework, and to consider the impact of the tax on their pricing and margins. The
Kingdom of Saudi Arabia (KSA), United Arab Emirates (UAE) and Bahrain introduced
excise tax in 2017, ahead of their respective VAT regimes. Qatar has also recently
implemented excise tax with effect from 1 January 2019.

Value Added Tax

The introduction of Value Added Tax (VAT) in Oman has been postponed beyond the
originally anticipated date of 1 January 2019, 2020 and is expected to be placed in 2021.
The FY20 budget statement does not provide a timeframe for the introduction of VAT, but
refers to “ capacity building for tax and customs systems” – which may include
preparations for VAT. Similarly, the 20120 budget revenue forecast under “taxes and fees”
does not reflect any significant increase that may be attributable to the introduction of VAT
in this year.

To date, only three of the six GCC member states have introduced VAT: UAE and KSA
from 1 January 2018; and Bahrain from 1 January 2019. It is expected that, of the three
remaining countries, Oman will be the next to implement VAT. Accordingly, many
businesses have started to prepare for VAT implementation, and have started to mobilize
resources and budget to initiate this process in earnest in early 2019.

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Tanfeedh initiatives

The 2019 budget includes allocations to continue the focus on enhancing economic
diversification within the Sultanate into the sectors identified in the Tanfeedh initiative.
The Tanfeedh initiative was established to fulfill the objectives of the Ninth Five Year
Development Plan 2016 – 2020. The details of the Tenth Fuve Year Development Plan
2021-2025 It also works towards sustainable participation between the public and private
sectors. The strategic sectors identified in the programme are: manufacturing, tourism,
transport, logistics, mining and fisheries.

Although the initiatives recommended by Tanfeedh are heavily reliant on private sector
investments into the projects, the government is committed to taking further steps to
facilitate procedures to support and provide efforts to develop the respective sectors and
the business environment as a whole.

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5.Economy before the pandemic

In the year 2019, MSM 30 Price Index closed down, however, MSM total return index was
up as it takes into account dividend reinvestment while the earlier one does not. There were
a number of good news during the year on the macro-economic front, however, in spite of
positive announcements by the Government, the regulator and the companies, the local
market witnessed a fall during the year as per the price index while it was higher if we
calculate on the MSM total return index. Overall, the price index closed down by 7.92% at
3981.19 while MSM total return index was up by 4.1% since its inception in mid-February
(4076.88) to close the year at 4243.79.

The market capitalization stood at the year end at OMR 18.76bn.

The total value of special deals carried out on the Muscat Securities Market in 2019 stood
at OMR 206mn, i.e. a yearly increase of 58.7%. Most of the deals were carried out within
the Services sector and the Financial sector. The year started on a low note but during the
year in the second quarter news regarding removal of tax on dividends for foreigners
changed the investor sentiments and increased foreign investments. However, things
started to change at the end of the year and foreigners started exiting the market ending the
year with negative net foreign outflow of approximately USD 13mn. This is primarily due
to the junk credit rating of the economy, due to its excessive reliance on oil and gas
revenues which are subject to market dynamics.
In 2019, tenders’ worth of OMR 819.7mn were awarded according to the media and U
Capital database. This represents a notable annual increase of 270.2%. Major contracts
were for in health sector, education sector and infrastructure. The 2nd quarter registered
the highest value of awarded tenders with contribution of 37.3% followed by the 3rd
quarter with 27.5% then the first quarter with 25.7% and lastly the 4th quarter with 9.5%.
All these positive figures were due to the rapid increase of oil prices in the first quarter of
2019, allowing the government to fund new projects and provide incentives to the locals in
various other aspects.
The current year is the final year of the Ninth Five-Year Plan (2016-2020), which focused
on the five promising sectors (namely: logistics, manufacturing, tourism, fisheries and
mining sectors) with the aim to uplift economic diversification efforts. The outcomes show
that the contribution rate of these sectors to gross domestic production (GDP) in 2018 is
very close to the targeted figures planned to be achieved by the end of 2020. It is worth
noting that the Ninth Five-Year Development Plan targeted a real growth rate of 2.8 per
cent, while the real growth rate during the first three years (2016-2019) of the plan averaged
2.6 per cent.
Furthermore, the Ninth Five-Year Development Plan also targeted a real growth rate of 4.3
per cent in non-hydrocarbon activities as compared with a rate of 0.2 per cent for
hydrocarbon activities. However, the average of real growth rate registered 3.4 per cent

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over the first three years of the plan, reflecting the positive impact of implementing the
National Programme for Enhancing Economic Diversification (Tanfeedh).
Investments, in the first three years of the Ninth Five-Year Development Plan, estimated
to be around RO 22.8 billion i.e. 55.9 per cent out of total investment targeted in the same
plan. The investment rate to GDP averaged 29.2 per cent over the period as compared with
the targeted investments rate of 28 per cent.
The inflation rate stood as low as 0.2 per cent over the period from January to November
2019. The inflation is projected to remain at low level during the period between 2019 and
2020. For the banking sector, the financial statements issued by Central Bank of Oman
(CBO) show a rise in foreign exchange reserves by 2.8 per cent, reaching RO 6.3 billion
by the end of October 2019 as compared with RO 6.1 billion during the same period in
2018. The rates of loans and deposits increased by 3.9 per cent reaching RO 25.9 billion,
and 3.1 per cent reaching RO 23.2 billion by the end of October 2019.
Oman trade balance showed a surplus of RO 4.3 billion as at the end of September 2019
as against RO 4.1 billion over the same period in 2018, with a growth rate of 5 per cent.
On the other hand, total imports amounted to RO 6.8 billion as compared with RO 7.5
billion over the same period in 2018. The volume of exports and re-exports reached RO
11.1 billion.

GOVERNMENT REVENUES AND SPENDING

Oman’s 2019 budget estimates total revenues at OMR 10.1 billion, an increase 6%
compared to estimated revenues in 2018. Oil and gas revenues comprises c. 74% at OMR
7.4 billion. Revenues estimates are based on the Country’s commitment to cut down on oil
production in accordance to OPEC’s decision to reduce production volumes and increasing
gas revenues from the Khazzan oil field (Standard and Poor’s expects a significant increase
in gas revenues from the ongoing Khazzan project).

There is continued focus on the need to enhance the contribution of non-oil revenue, and
the budget includes allocations for the five sectors identified by the National Program for
Enhancing Economic Diversification (Tanfeedh): manufacturing, logistics, tourism,
fisheries and mining. The Government acknowledges that revenues from these sectors
depend significantly on private sector investment and is committed to improving the
business environment to facilitate this. In addition, the Government appears keen to
outsource other services and projects to the private sector to further ease expenditure and
with the aim of bringing improved efficiency and cost savings.

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Following the spike in the actual deficit in 2016 at c. OMR 5.3 billion (initially budgeted
at OMR 3.3 billion), the deficit appears to be managed and is showing recovery. The
estimated deficit in 2019 is lower than the deficit of 2017 by c. 18%, or OMR 600 million.
Despite the unfavourable set of global economic conditions and the uncertainty over the
debt market, Oman covered the approved deficit in 2018 by borrowing mainly from
external sources (albeit at higher interest rates). This accounted for 69% of total deficit
funding, whilst domestic borrowing amounted to only 17%, and the remaining 14% was
covered by withdrawal from reserves.
The 2019 budget deficit is 86% covered by external and domestic borrowing, while the
balance will be covered by drawing on the reserves. This is in line with the Government's
guidelines to maintain the sovereign reserve funds, and to rely upon borrowing to finance
any deficit. Government has committed to the completion of a number of strategic
investment projects and promoting the involvement of the private sector and small and
medium enterprises (SME’s) in the delivery of some government services. SME’s will also
continue to have access to funding via loans from the Al Raffd Fund and Oman
Development Bank.
Total public spending is budgeted at about RO 13.2 billion in 2020, increasing by RO 300
million i.e. 2 per cent compared with the budgeted figures of 2019. The government
revenues for the year 2020 were expected to be as follows in the first quarter of 2020.
Aggregate revenue is estimated at RO 10.7 billion, increasing by 6 per cent as compared
with estimated revenue for 2019 and accounting for 33 per cent of GDP. Such revenue
consists of oil and gas revenue of RO 7.7 billion, representing 72 per cent of total revenue.
Non-hydrocarbon revenue is estimated at RO 3 billion i.e. 28 per cent of total revenue.

Oil Revenue:
Oil revenue projected to amount to RO 5.5 billion, representing 51 per cent of total revenue
as against 54 per cent in 2019.

Gas Revenue:
Estimated gas revenue in 2020 Budget increased by 11 per cent as compared with budgeted
figures of 2019, reaching RO 2.2 billion. This is attributed to an increase in natural gas
volume by 5 per cent, and a rise in local gas sales by 3 per cent.

Non-hydrocarbon revenue:
The non-hydrocarbon revenue projected to stand at RO 3 billion, up by 13 per cent as
compared with 2019 Budget. This increase is due to higher tax revenue by 9 per cent and
non-tax revenue by 18 per cent as compared with what have been achieved in 2019. This
comes in line with government’s efforts to diversify the sources of income and enhance
non-hydrocarbon revenue. The recent establishment of Tax Authority will help to improve
the efficiency of tax collection.

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6.Economy during the pandemic

As part of the new measures to cut expenditure in the Sultanate, the Ministry of Finance
has decided to reduce the 2020 budget spending by RO 500 million. According to decisions
taken by the ministry, a 10 per cent cut in allocations for civil ministries and government
departments and a five per cent cut in allocations for the civil, security and military entities,
have been affected in the revised budget. The government departments must seek the
finance ministry’s approval before floating any new projects (tenders) or entry into any
other financial obligations without prejudice to financial dues of firms or importers
partnering with the government.
The government is trying to balance desired financial and economic objective. The ministry
had issued 13 circulars and several directives to state departments since the beginning of
the year with the aim of reducing spending in the state 2020 general budget. The ministry
issued instructions to rationalize spending in government firms in operation budgets and
rescheduling of project execution by advancing government priorities during the current
stage.
These measures may help Oman to bypass the current crisis. But they may not hold for
long if oil prices keep sliding as Budget 2020 estimates were based on $58 oil price. The
current price of less than $30 will deepen budget deficit. The government may look at
further financial and economic measures to face the crisis.
Expected deficit in the first quarter of 2020, according to the preliminary results, the actual
fiscal deficit for FY 2020 is projected to be around RO 2.5 billion i.e. 8 per cent of GDP,
lower than 2019 budgeted deficit. The deficit is trending downward from its level over the
past three years. Any resultant increase in oil revenue will be utilized in financing the
deficit.
The deficit will be financed through external and domestic borrowing by 80 per cent i.e.
RO 2 billion. The remaining deficit, estimated to nearly RO 500 million, will be covered
by drawing on reserve.
The table below demonstrates the new forecasted government revenue due to several
changes during the pandemic.
All the assumptions have been stated below the table.

PAGE 19
 2020 budget(updated) 2019 budget 2018 budget
Target oil prices at $34/bbl Target oil prices at Target oil
$58/bbl prices at
$50/bbl
OMR (m) % of % change OMR % of % OMR % of
total from 2019 (m) total change (m) total
from
2018
Revenues
Oil 3204 38 -26 5,465 54 12 4,870 51
Gas 2200 26 5 1,980 20 2 1,910 20
Total oil & 5404 64 -16 7,445 74 10 6,780 71
gas
Taxes & fees 1581 19 4 1,450 14 3 1,413 15
Non tax 1003 12 8 850 8 -26 1,147 12
revenues
Others 417 5 8 355 4 122 160 2
Total non-oil 3000 36 6 2,655 26 -2 2,720 29
& gas
Total 8404 100 -9 10,100 100 6 9,500 100
revenues
Expenditure
Defense and 2829 24 -10 3,450 27 0.4 3,440 28
security
Oil and gas 1829 15 -10 2,230 17 6 2,100 17
Civil 3681.8 31 -10 4,490 35 3 4,350 34
ministries
Loan interest 819 7 13 630 5 31 480 4
Investments 1722.5 14 13 1,325 10 -3 1,365 11
Subsidies and 1,008 8 13 775 6 -22 765 6
other
Total 11,888 100 -4 12,900 100 3 12,500 100
expenditures

Deficit -3485 100 11 -2,800 -3,000

Deficit
funded by:
Foreign 2585 74 13 2,000 72 -5 2,100 70
borrowing
Local 400 11 0 400 14 - 400 13
borrowing
Reserves 500 14 11 400 14 -20 500 17

PAGE 20
 Assumptions:
1. The oil prices is considered stable at $34/bbl, due to high prices at the start of
the 2020 quarter 1, and negative in the beginning in the start of second quarter.
2. The ministries follow the 13 directed statements by the royal decree.
3. Due to almost no fluctuation in the gas prices, there are close to no changes in
the expected gas revenue of 2020.
4. Making sure 3086 million riyals of foreign aid can be arranged by the
government, despite it getting a junk credit rating.
5. Averaging the new vs, the total debt of the government and assuming there
being increase in the interest rates in accordance with the global inflation and
interest rates.
6. The tax collection will be in accordance with the initial predicted and is not
affected by the lower overall demand and inflation in the economy.
7. The oil prices have an average daily price of $34/bbl throughout the year.
8. Non-tax revenues increase as predicted without any SOEs failing or incurring
losses

As it can be seen from the table above the new expected government revenues are at RO
8.4 billion and spending at RO 12.4 billion. Resulting in a deficit of RO 4 billion. The
deficit is expected to be financed by foreign borrowing of OR 3.1 billion. Which is subject
to fail due to the accumulated debt of the economy and the junk credit rating. It is possible
for the government to borrow at high interest rates, but this may be a short-term leavage.
If the oil prices don't reach above the $54/bbl mark, Omans economy may enter into
recession. The remaining OR 0.9 billion is expected to be funded by the reserve and
domestic borrowing.

Sectors of the economy most affected

The Sultanate’s three principal fuel marketing companies reported a dramatic decline in
their net earnings for the first quarter of this year, attributable largely to the effects of a
burgeoning economic downturn slump as well as to a general lockdown ordered by
authorities with the aim of curbing the spread of the novel coronavirus.
Shell Oman Marketing Company’s (SOMC) net profit after tax for the quarter ended March
31, 2020, dived 93 per cent to RO 0.122K, down from RO 1.775 million for the
corresponding period in 2019, the company said in initial unaudited financial results
published last month. Revenues dipped 2.2 per cent to RO 117.9 million this year, down
from RO 120.5 million for Q1 2019.

PAGE 21
Oman Oil Marketing Company (OOMCO), the biggest of the trio by market share, reported
a 46.7 per cent decrease in net profit after tax to RO 602K this past quarter, down from RO
1.130 million for the corresponding quarter of 2019. Total revenue of the group was lower
by 6.8 per cent at RO 131.752 million in Q1 this year versus, RO 141.390 million for Q1
2019.
Rounding off the list, Al Maha Petroleum Products Marketing Co announced a steep 86
per cent fall in net profit after tax for the first quarter at RO 137K, down from RO 980K in
Q1 2019. Revenue for the quarter also declined 10 per cent to RO 100.459 million, down
from RO 111.938 million for the corresponding quarter of 2019.
According to experts, the impacts are expected to be much more pronounced in the current
second quarter following the adoption of full-blown pandemic mitigation measures, which
have resulted in the curtailment of most local and international flights, while vehicular
traffic has been reduced to a minimum. Motor and aviation fuels are mainstay revenue
sources for fuel marketing firms in the Sultanate.
Construction companies in the Muscat have been forced to put their construction sites on
hold and deport excess workers to their own countries. This has resulted in a huge amount
of net losses for all the companies.
Due to the foreclosure of all malls due to lockdown, since 28th of April, the revenues for
all the international brands has sharply declined, while some have moved to use app-
integrated home delivery systems to their use. But due to the consumers not being able to
personally see the product before purchasing, the sales have plummeted. According to the
latest permission by the ministry, all of Muscat is allowed to re-open, including malls,
tourist destinations, all shops, fitness centres, etc. This move has allowed luxury outlets
and majority of the consumers to again increase their spending at pre-pandemic levels. But
as per many reports and behaviours all around the world, food delivery systems and
restaurants all around the world have been lower than 60% of the demand before the
pandemic.

PAGE 22
7. Mitigation

Oman’s Economic Diversification Efforts:

Efforts are ongoing to achieve economic diversification through facilitating government
process and enhancing business environment so as to attract more investments, in a way
that leads to diversifying the sources of income and boosting GDP especially non-
hydrocarbon GDP. In addition, enhancing the contribution of the five targeted sectors
identified by the Ninth Five-Year Development Plan, namely logistics, manufacturing,
tourism, fisheries and mining sectors.
Royal decrees promulgated recently with respect to FDI, notably Foreign Capital
Investment Law, Bankruptcy Law, and Public-Private Partnership Law, would create new
horizons and more potential opportunities for investment. These laws have been
promulgated with the aim to enhance public-private investments and improve business
environment and investment climate. This would result in the flow and stability of FDI.
The government also seeks to enable the private sector to play a greater role so as to
effectively contribute in accelerating economic growth. In addition to support the
implementation and completion of strategic projects, the main ones being:

• Salalah Ammonia Project

• Ras Markaz Crude Oil Storage Terminal Project
• Salalah Liquefied Petroleum Gas Project
• Mina Sultan Qaboos Waterfront Project
• Liwa Plastics Industries Complex Project
• Khazaen Economic City Project
• Madinat Al Irfan Project
• Oman Food Investment Holding Company Projects
• Copper Mining Project in AL Mudhaibi

Furthermore, the government gives greater attention to the development of Special

Economic Zone of Duqm to become an industrial and logistical hub. Therefore, the
government has implemented several development projects in partnership with the private
sector. The total investment spending on the development of this zone amounted to around
RO 2.6 billion by the end of 2019. Investment in industrial projects amounted to nearly RO
4.3 billion, such projects include the following:

• Duqm Refinery Project • Sebacic Oman Bio-Refinery

• Centralised Utilities Project • Cooking gas plant
• Fisheries Industrial Complex •Shomookh Complex for Mining
• Little India Tourism Complex Industries
• Marina Duqm Project

PAGE 23
Fiscal Planning and Discipline:
Even though deficit has been declining, the government is keen to further strengthening
fiscal consolidation and discipline. In order to achieve fiscal balance over the medium term,
the government is carrying out the following:

• Developing a Multi-Year Budget Framework (2020-2024). This is to include medium-

term estimates of revenue, expenditures, deficit/surplus, and financing. This framework
would also consider Oman Vision 2040 and Tenth Five-Year Development Plan (2021-
2025).
• Accelerating the implementation of Government Financial Management Information
System (GFMIS).
• Completing the application of Programme and Performance Budget (PPB).
• Completing the activation of a single account for the treasury in order to help ensure
effective management of liquidity and cash flow.
• Preparing a charter on corporate governance of SOEs.

All these initiatives of diversification and growth will enable the economy to grow to be
more sustainable and prosperous then it was before. His Majesty Haitham bin Tariq has
taken a lot of steps in reducing the affects of the Pandemic on the economy including
raising Omanization for all companies in the sultanate to 70% of all employees. The finance
ministry of the sultanate is now more confident of its spending due to the Omani oil prices
rising to $40/bbl as on 4th of June, the reduced spending as directed by the ministry is now
in-line with the reduced oil and gas revenues in the 1st and 2nd quarter of 2020.All of the
earlier halted construction projects in the sultanate have been allowed to proceed in order
to help in the diversification efforts of the sultanate. Ministries have however been told to
cut spending in areas possible in order to minimize the sultanates budget deficit and help
lower the government borrowing and hence improve its credit rating.

Mitigation can also be demonstrated by implementation of substantial fiscal measures to

curtail the government deficits, a new push on privatization, and prioritizing capital
projects. With its accumulated external debt, sultanate will need a rapid normalization of
emerging market funding conditions to finance the continued deterioration of the country's
fiscal and external accounts. Significant new gas production in 2021 along with
diversifying the economy in sectors such as manufacturing, tourism and fishing will
support the growth momentum and lessen the risks. At the same time, enabling Petroleum
Development Oman (PDO) to maintain or increase its oil and gas production has sizable
investment needs. The pressure for job creation, resulting from the low employment rate
of young Omanis, is a risk to public finances and the social situation. Sultanates progress
post-pandemic will be determined by its pandemic mitigation and diversification efforts
post pandemic. Taking into assumption of all the projects are up and running with a gap of
2-3 months, will enable the economy to stabilize post pandemic.

PAGE 27
8.References:

 Barbuscia, Davide. “UPDATE 2-Oman Finance Ministry Cuts 2020 Budget for
Govt Agencies by 5%.” Reuters, Thomson Reuters, 17 Mar. 2020,
www.reuters.com/article/oman-economy-budget-idUSL8N2BA0SV.
 Cowen, Tyler, and Alexander Tabarrok. Modern Principles of Economics. Worth
Publishers, 2013.
 Duffy, Clare, and Jill Disis. “OPEC+ Reaches Deal to Cut Oil Production by 9.7
Million Barrels per Day.” CNN, Cable News Network, 13 Apr. 2020,
www.cnn.com/2020/04/12/energy/opec-deal-production-cut/index.html.
 “Oil Price Charts.” OilPrice.com, oilprice.com/oil-price-charts.
 Oman - Credit Rating, tradingeconomics.com/oman/rating.
 “Oman GDP1960-2019 Data: 2020-2022 Forecast: Historical: Chart: News.”
Oman GDP | 1960-2019 Data | 2020-2022 Forecast | Historical | Chart | News,
tradingeconomics.com/oman/gdp.
 “Oman.” Infoplease, Infoplease, www.infoplease.com/world/countries/oman.
 “Oman.” Oman Economy: Population, GDP, Inflation, Business, Trade, FDI,
Corruption, www.heritage.org/index/country/oman.
 “Oman .” Data, data.worldbank.org/country/oman.
 PricewaterhouseCoopers. “Oman Budget 2020 Key Highlights.” PwC,
www.pwc.com/m1/en/services/tax/me-tax-legal-news/2020/oman-budget-2020-
key-highlights.html.
 Stewart, Jon, and Len Gill. Econometrics. Financial Times/Prentice Hall, 1998.

PAGE 27