|
Oman Public Finance and the Five-Year Development Plans
Prior to 1970, the financial position of the sultan was
virtually synonymous with the public finances of the
sultanate.
After Qabus ibn Said's accession to the throne, a formal
separation was initiated. The first government budget was
announced in 1971, and the First Five-Year Development
Plan was
initiated in 1976.
After recovering somewhat in 1987 after the collapse of
oil
prices in 1986, government revenue fell again in 1988 to
RO1,198
million (see
table 33, Appendix). Iraq's invasion of
Kuwait
resulted in a sharp rise in oil prices: average crude oil
spot
prices increased from US$16 per barrel in July 1990 to
almost
US$40 per barrel in September. Higher oil prices resulted
in
increased 1990 oil revenues, up 38 percent from 1989. The
restoration of the Al Sabah monarchy in Kuwait and the
defeat of
Iraqi forces by an allied coalition stabilized the
international
oil market's uncertainty about supplies, and prices
collapsed to
precrisis levels. Omani government revenues dropped to
RO1,570
million in 1991, from RO1,859 million in 1990. The
government
budget for 1992 was based on an estimate that total
revenues
would increase to RO1,628 million as a result of slightly
higher
oil income and as a result of increases in gas revenues
and other
domestic indirect taxes.
Although the government stresses investment, government
expenditures are largely current expenditures, suggesting
the
importance the government places on maintaining its
security,
against both internal and external threats, and on its
civil
administration. Public corporations and ministries have
provided
a mechanism for income distribution and the creation of a
salaried middle class. Reducing expenditures through
public
sector cuts is regarded as politically sensitive and
therefore
has been avoided, even after the oil price collapse in the
mid1980s and the associated loss of income.
The 4.3 percent per annum increase in total
expenditures
after 1986 largely resulted from these concerns. Between
1987 and
1991, total government spending rose from R01,576 to
RO1,853
million. During this period, current expenditures grew at
5
percent per annum. Although barely keeping pace with
domestic
inflation and increasing at a slower growth rate than that
of the
preceding ten years--when current outlays rose at 19.7
percent
per annum--maintaining domestic income and defense and
security
expenditures prevented any retrenchment, despite wild
fluctuations in income. Capital expenditures, however, had
to be
reduced between 1987 and 1990 and fell by 4 percent per
annum.
Higher oil prices in 1991 allowed the government to boost
investment spending to pre-1986 levels, with a 37 percent
increase over 1990. This adjustment restored the share of
capital
outlays in total government spending to 23 percent, after
falling
to about 12 percent in 1990. The 1992 budget called for
further
increases in spending to RO1,876 million, of which capital
expenditures were slated to rise to RO404 million, or 22
percent
of the total.
With the exception of a short period in the early
1980s, the
government budget has registered sizable deficits. During
1986
the deficit (RO700 million) peaked at 28 percent of GDP.
It was
sharply reduced during the latter half of the 1980s but
has
continued to hover close to 10 percent of GDP. A lag in
increased
spending to match the rise in oil revenues late in 1990
permitted
the government almost to balance the budget. But in 1991
spending
more than offset oil revenues, and the actual budget
deficit rose
to RO283 million, or 10 percent of GDP. The 1992 budget
forecast
indicated another deficit of this magnitude.
The government has financed these budget deficits by
drawing
down on the Contingency Fund and by small amounts of
commercial
borrowing. Economic difficulties have compelled the
government to
raise money on international capital markets. In 1986 the
government received a US$500 million syndicated Euroloan,
the
major sponsors of which were Gulf International Bank (in
which
the government is a shareholder) and Chase Investment
Bank. In
1988 the government obtained a Japanese yen-denominated
loan
valued at US$130 million and a second US$100 million loan.
Balanced fiscal conditions permitted the authorities to
pay some
of Oman's debt outstanding in 1990. During 1991 and 1992,
authorities instituted a domestic development bond scheme,
which
has financed roughly one-half the fiscal shortfall.
The Fourth Five-Year Development Plan (1991-95)
projected
government revenue at RO8,571 million, up 22.8 percent
from the
previous plan. Oil revenue is expected to account for more
than
76 percent of total revenue and to increase by an average
of
about 5 percent each year, reaching RO1,785 million in
1995 on a
gross basis and RO1,429 million on a net basis (that is,
gross
oil revenues less subventions to the State General Reserve
Fund
and the Contingency Fund). The plan was based on an
assumed
average oil price of US$20 per barrel in the five years.
During
the first two years of the plan, total revenues roughly
kept pace
with planned earnings because oil prices held at those
levels.
Expenditures during the Fourth Five-Year Development
Plan
were set at RO9,450 million, with current expenditures
accounting
for 76 percent of the total, investment expenditures set
at 22
percent, and additional support to the private sector set
at 1.4
percent. Defense and national security and civil
ministries
continue to make up the bulk of current expenditures. With
expenditures exceeding revenues, the government projects a
cumulative deficit of RO879 million. The government plans
to
finance the deficit by issuing RO430 million in government
bonds
on the Muscat securities market and by further drawdowns
on the
Contingency Fund.
The State General Reserve Fund is to be strengthened by
allocating 15 percent of oil revenues to the fund, up from
the
previous 5 percent. This policy change was made possible
after
the creation of the Contingency Fund in 1990, which
receives 7.5
percent of net oil revenues if the oil price is US$18 to
US$20
per barrel and 10 percent if the oil price rises to US$20
to
US$22 per barrel. Both policies are directed toward
smoothing out
the effects of oil price fluctuations and reducing the
economy's
vulnerability to unexpected changes in the international
oil
market.
Data as of January 1993
|
