Budget focus: Commitment to financing education maintained despite falling oil revenues

Despite declining oil and gas revenues, Oman maintained its commitment to education spending in its 2015 budget, with the sector retaining a major share of state expenditure. This bodes well for 2016 and beyond, too, as the government clearly recognises that the long-term health of the broader economy, as well as of its citizenry, depends to a large measure on the success of its education and training initiatives.

Lion’s Share

With details released at the start of 2015, the sultanate’s budget for the year was up 4.4%, based on the assumption of 5% GDP growth and a non-disclosed oil barrel price (for 2014, the assumption had been $85 a barrel, while KPMG estimated the non-disclosed 2015 assumption was around $80).

The budget thus sees total expenditure up from OR13.5bn ($35bn) in 2014 to OR14.1bn ($36.5bn) in 2015, while total estimated revenues were expected to fall by just 0.9%, from OR11.7bn ($30.3bn) in 2014 to OR11.6bn ($30bn). Of the total expenditure for 2015, OR1.8bn ($4.7bn) was earmarked for education – a rise of 27% on OR1.4bn ($3.6bn) in 2014. This gave the sector the highest increase overall, as well as the highest total value. The other two major beneficiaries were health, up 16.6%, and social security, up 16.8%. Thus, the budget continued the sultanate’s long-term focus on developing its human capital.

Quality & Quantity

The education budget jump, described as a “shot in the arm” by Said Amur Said Al Rahbu, director of the qualifications equivalence and recognition department at the Ministry of Higher Education, will enable a greater focus on both developing the sector’s physical infrastructure and improving the quality of its delivery. Regarding the former area, the budget sets aside funds for the construction and operation of 41 new schools. This addresses a pressing demographic issue – around half of the country’s population is under the age of 21 and student numbers are on the rise, increasing by 28,345 between August 2014 and August 2015 alone.

Also specified in the budget is an allocation of OR95m ($246m) to fund training programmes both within and outside Oman, with these programmes directed at preparing graduates for the job market. The extra budget allocation will fund efforts to improve quality, developing the sultanate’s educational institutes to bring them into line with international best practices, according Al Rahbu.

Deficit Spending

Since the budget was announced, oil prices have continued to tumble, however, with the global standard West Texas Intermediate trading below $50 per barrel, as of mid-October 2015 and forecast to decline further. The sultanate has thus been running a bigger budget deficit than envisaged, with Ministry of Finance (MoF) data indicating the deficit stood at $4.98bn by the first half of 2015. Oman reportedly planned to run a deficit of 7.8% of GDP for the full year, or $5.86bn, but the IMF predicts the overall fiscal deficit will be 14.8% of GDP.

Sustaining an expanding budget at a time of major declines in the country’s main source of revenue will be a challenge. Some 83% of government revenue in 2014 came from oil and gas, and in response to the price drop the government has looked to reduce deficits by cutting subsidies. The sultanate has historically subsidised a range of products, from food items such as rice and flour, to petrol. Figures from the MoF state that the total subsidy bill fell by some 47.9%, year-on-year, during first quarter of 2015, although much of the drop may have been due to the drop in oil prices.

However, perhaps the greatest defence the education budget has against cuts is the deep commitment of the government to the sector. This is evident in the fact that the Majlis Al Shura, the Omani parliament, has so far recommended cuts in defence and development projects, but not education, health or social services. Education, as the sultan and the government clearly recognise, is so fundamental to development that its budget is likely to remain sacrosanct.