Abu Dhabi, UAESunday 12 July 2020

Oman cuts budget again as oil price crash and coronavirus hit

The country was basing the 2020 spending on selling oil at $58 per barrel but it is currently on the market at just $31 per barrel

Indian nationals residing in Oman wear face masks due to the coronavirus pandemic as they have their body temperatures measured at a terminal in Muscat International Airport. AFP
Indian nationals residing in Oman wear face masks due to the coronavirus pandemic as they have their body temperatures measured at a terminal in Muscat International Airport. AFP

Oman's Finance Ministry has ordered all government departments to cut an additional 5 per cent from their planned spending as lower oil prices continue to batter the country’s economy.

Last month, Oman slashed 10 per cent of its government spending, an equivalent of 500 million rials (Dh4.7 billion).

The previous measure also stated that all government employees who have served for 30 years will now be retired and cuts in half the salaries for board members in government organisations.

On Wednesday, the ministry of finance slashed a further 5 per cent of spending in the ministries but did not say how much that would equal. Analysts predict it represents a cut of another 250 million rials.

“It is a budget austerity step which means a total of 750 million rials removed from ministries. If the oil prices continue to fall, then we should expect further reductions in other areas of the government,” Abdullah Al Fahmi, a financial analyst, said.

Coronavirus around the region

Oman based its 2020 budget on total spending of 13.2 billion rials with over half for the oil sector, military spending and other critical areas from the estimated revenue of 10.7 billion rials. The deficit was estimated to run at 2.5 billion rials if the average oil price remained stable at $58 per barrel. However, that has not happened as oil prices have tumbled in recent weeks.

“Oman is now selling its oil at about half of what it was estimated in the 2020 budget. It makes sense to reduce the civil ministries spending since about half of the total expenditure has been allocated to them,” Mr Fahmi explained.

Oman currently sells its oil at $31 per barrel, about $27 short from its estimated price in this year’s budget. The Covid-19 has also reduced Oman’s government domestic income, such as from the aviation industry. The sultanate’s two national airlines, Oman Air and Salam Air, are grounded with no income. The pandemic outbreak is also forcing the Health Ministry to spend more money than allocated for it in this year’s budget.

On Wednesday, Oman announced 298 new cases of Covid-19 taking the total of infected people to 4,019 with 17 deaths while 1,289 have recovered.

Other analysts said Oman would need to borrow from international banks if oil prices do not recover soon.

“If oil prices stay the way it is, the budget deficit will widen and Oman will need to borrow from banks to settle it. Cutting expenditure would help, but not much,” Said Al Kharusi, an economist analyst, said.

Updated: May 13, 2020 07:09 PM

SHARE

SHARE

Editor's Picks
THE DAILY NEWSLETTER
Sign up to our daily email
Most Popular