Oman cuts defence, subsidy spending, keeps investing as oil sags

Oman’s government has responded to low oil prices by cutting spending on defence and subsidies while continuing to invest in diversifying the economy, official figures showed on Tuesday.

The plunge of crude prices since last year has slashed the government’s net oil revenues, which shrank 35 per cent from a year earlier to OMR1.67 billion ($4.35 billion) in the first quarter of this year, provisional finance ministry data showed.

This is a serious blow to Oman, which lacks the ample fiscal and hydrocarbon reserves of its wealthier Gulf neighbours. The government swung to a budget deficit of OMR544.6 million in the quarter from a OMR215.4 million surplus a year ago.

But the government is continuing to spend on infrastructure and economic development projects, such as roads, ports, airports and industrial facilities, that it hopes will broaden the economy and eventually reduce its dependence on oil.

Public investment spending rose 2.3 per cent to OMR555.4 million, with investment in oil production declining slightly and investment in natural gas production increasing 35 per cent.

Meanwhile, current spending on defence and national security dropped 25 per cent to OMR567.3 million. Spending on “participation and support”, which includes subsidies, fell 48 per cent to OMR189.0 million; the government raised domestic natural gas prices on Jan. 1 to save money.

Current spending on civil ministries climbed 9.8 per cent to 896.4 million, suggesting the government has not so far been able to restrain lavish employment of local citizens in state jobs, a big drain on its finances.

Oman’s 2015 budget plan, announced in January, envisages government spending of OMR14.1 billion and a deficit of OMR2.5 billion, assuming an average oil price of $75 per barrel.