Industry leaders hail decision to increase spending in 2019

January 07, 2019

Industry captains from Oman's private sector have welcomed the government's announcement of increasing the spending in 2019 budget to push the economic growth. On Tuesday, the sultanate announced its state budget for 2019 in which total spending has been projected at RO12.9bn, around RO400mn higher compared previous year's budget.

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“It is for the second straight year that the government has increased spending and this is a very good sign. The budget indicates the government's confidence in meeting the fiscal deficit target. It also means that the government spending will keep driving economic growth in future without worrying too much about meeting the deficit,” said Alkesh Joshi, tax partner at EY Oman. Oman's 2019 budget assumes an average oil price of US$58 per barrel for the year, thus estimating total revenues at RO10.1bn. The budget estimates a deficit of around RO2.8bn for this year, which is lower than RO3bn deficit estimated in 2018 budget.

“I think it is a very optimistic budget,” said Tony Alexander, director at Oman-UAE Exchange. According to him, the sultanate is planning to invest more in infrastructure, which is likely to push the economic growth of the country.

Sudhakar Reddy, CEO of Al Habib & Co, said that the government has acted responsibly in keeping the balance between spending and fiscal deficit. He explained that the government's plan to increase spending, particularly on development projects, will help the economy grow at three per cent this year, and it will be helpful in generating much-needed jobs for the youths. For this year's budget, the private sector is elated by the government's decision to allocate RO3.7bn for infrastructure development and industrial and services sectors projects. “Given the volatility in oil prices, the success of government’s diversification agenda is key in order to achieve growth, increase employment and maintain public debt at reasonable levels in relation to the GDP,” KPMG said in its budget insight.

According to the government's budget statement, total investment spending of RO3.7bn includes RO1.2bn allocated for infrastructure projects which are overseen by various government units, while the remaining RO2.5bn will be utilised by some state-owned-enterprises for the implementation of projects in industrial and services sectors.

“The government's decision to keep spending will help the country to grow faster,” said Mubeen Khan, a chartered accountant based in Muscat. He explained that despite an increase in spending, the fiscal deficit is unlikely to rise significantly as the oil price assumption of US$58 per barrel for 2019 is a conservative one.

Most private sector executives believe that the deficit for 2019 is likely to remain much lower than the budget estimate of RO2.8bn, mainly on hopes of a recovery in global crude prices later this year. “All the economic indicators are pointing towards a much higher crude price in 2019, as we have already seen the prices touching US$80-85 per barrel in 2018. And it may even touch US$90 level in 2019,” Khan added.

Senior officials from Oman's private sector, however, expressed concerns that there is no indication in the budget of the likely implementation of value-added-tax (VAT). “We don't know when VAT is going to be implemented. There is no information available in the budget,” said Reddy. According to Joshi, the details of the budget is not out yet, but the government has mentioned in the budget that around RO100mn will be collected through additional tax, which could be excise tax, which may be notified later. “Implementation of the VAT is a long process, hence we may see some indication later this year,” Joshi added.

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