MUSCAT: Deputy Division Chief of the Middle East and Central Asia Department of the International Monetary Fund (IMF), Ananthakrishnan Prasad, said in his interview in Muscat that Oman must cut subsidies and burgeoning public wage bill to evade draining financial reserves.
The IMF mission will press for major fiscal reforms in the sultanate, he added.
“The oil price decline has made undertaking of reforms more urgent for Oman,” Prasad said. “Without any reforms at this stage the country will either have to use its buffers or increase debt, and there could be spillovers from the fiscal sector to the rest of the economy.”
Oman, the biggest Middle Eastern oil producer that is not a member of OPEC, has been hit hard by the rout in oil prices. After years of surpluses, the country recorded a budget deficit of RO600mn last year, according to the Ministry of Finance. It estimated that the deficit will widen to eight per cent of gross domestic product this year, assuming an oil price of US$75 per barrel.
Brent crude was trading at just over US$60. In its survey of what the drop in oil prices means for Middle Eastern nations, HSBC Holdings Plc predicted that Oman’s shortfall could reach 16 per cent of GDP if it carries on spending at trend levels. Oman’s fiscal stance will “tighten significantly if low oil prices persist, drawing down overall growth,” HSBC economists said in a report.
