A downturn in oil revenue on the back of production cuts by the Organisation of the Petroleum Exporting Countries contributed to a difficult year for Oman in 2019, as the government continued with efforts to balance the budget and diversify the economy.
Based on data compiled in October, the IMF anticipated flat growth for the year, down on 2018’s expansion of 1.8%.
This figure is lower than the fund’s earlier estimate of 1.1% growth. The decision to revise the outlook was largely influenced by lower levels of oil activity.
National crude production was down 3% year-on-year (y-o-y) between January and November, according to the National Centre for Statistics and Information, while net oil revenue dropped 7.6% y-o-y in the first 10 months of 2019 to OR5bn ($13bn).
The oil sector is expected to rebound strongly in 2020, however, which should drive national growth of 3.7%, according to the IMF.
See also: The Report – Oman 2019
New reforms to boost mining
While the hydrocarbons sector did not have a banner year, notable progress was made in various non-oil industries.
Chief among these was mining, which benefitted from reforms designed to stimulate investment.
Passed in February, the Mineral Wealth Law aims to streamline procedures and increase licensing transparency.
It states that licences for exploration and prospecting may be granted for one year and are renewable for a period of three years. The licence period for exploration is five years, while concession agreements for large deposits may be granted for periods of between 20 and 30 years.
The law has also reformed the royalty system, with a view to incentivising investment. While the previous royalty rate was set at 10%, this has been replaced with a minimum rate of 5% that can be altered depending on market conditions.
Efforts to boost mining output come amid broader plans to diversify the economy away from a reliance on oil and gas.
Mining features as one of the five main pillars of the government’s National Programme for Enhancing Economic Diversification, also known as Tanfeedh.
A specialised mining lab associated with Tanfeedh has created 43 projects and initiatives with an estimated value of OR813m ($2.1bn), of which 99% will be led by the private sector.
The projects are expected to create more than 1600 direct jobs and increase the country’s annual mineral production to 147m tonnes by 2023.
Elsewhere, in a push to attract more foreign direct investment and reinforce the regulatory framework of capital markets, a series of royal decrees were issued in September: the Foreign Capital Investment Law, the PPP Law, the Privatisation Law and the Bankruptcy Law.
With the passing of Sultan Qaboos bin Said Al Said in early January, and the new sultan's commitment to pushing ahead with the policies of his predecessor, this reform agenda looks set to continue in 2020.
The new decrees were complemented in October 2019 by the establishment of the Ministry of Technology and Communications, which was separated from the former Ministry of Transport and Communications; the Ministry of Transport will now stand as an independent ministry.
The new Ministry of Technology and Communications will assume control of telecoms policies and legislation, bringing further clarity to the direction of the sector, which will welcome a third mobile operator, Vodafone, in 2020.
New taxes implemented to reduce deficit
Another key development in 2019 was the introduction of a so-called sin tax on alcohol, sugary drinks and tobacco products, part of a broader drive to bolster public revenue.
The tax, which came into effect on June 15, placed a 100% excise on alcohol, energy drinks, tobacco and pork products, as well as a 50% tax on carbonated drinks.
The levy is expected to generate OR100m ($260.1m) annually, in addition to improving public health outcomes.
Its introduction comes amid efforts to reduce the fiscal deficit and rein in debt, both of which have increased in recent years amid softer global oil prices.
The budget deficit rose from 0.3% of GDP in 2013 to a high of 21.2% in 2016, and is expected to moderate to 7.2% in 2019, according to the IMF, while government debt rose from 4.9% of GDP in 2013 to 58.7% in 2019.
Following belt-tightening initiatives, the budget deficit fell by 5.6% y-o-y between January and October, official figures showed.
In addition, there have been ongoing calls for the government to implement a 5% value-added tax (VAT) in line with other GCC economies. Despite initially agreeing to introduce VAT in early 2018, Oman delayed the decision amid sluggish growth and high unemployment. The tax’s implementation is currently expected to be revisited in 2021.