The Current Window
Higher oil prices since 2021, combined with fiscal reforms (VAT, subsidy rationalisation, expenditure control), have delivered fiscal surpluses for Oman after years of deficits. This is a precious window of opportunity. History shows that Gulf states tend to expand spending during high oil price periods, only to face painful adjustment when prices fall. Oman’s track record on this cycle has been mixed – the spending expansion of 2008-2014 directly caused the fiscal crises of 2015-2020. How the current surplus is managed will determine Oman’s resilience to the next downturn.
Priority: Debt Reduction
The first priority should be aggressive debt reduction. Oman’s government debt, while declining from its 2020 peak, remains elevated. High debt levels constrain fiscal flexibility, increase borrowing costs, and reduce investor confidence. Each percentage point of GDP reduction in debt frees up interest payment savings that can be redirected to productive investment. Reducing debt to below 30 percent of GDP – roughly pre-2015 levels – would significantly strengthen Oman’s fiscal resilience and potentially support credit rating upgrades that lower future borrowing costs.
Priority: Strategic Investment
Beyond debt reduction, surplus revenues should fund strategic investments that generate future non-oil revenue: green hydrogen infrastructure, tourism facilities, digital economy enablers, education quality improvement, and logistics connectivity. These investments should be evaluated on their return potential and contribution to diversification, not on political visibility. The Oman Investment Authority should receive surplus revenues to build the sovereign wealth buffer that provides intergenerational fiscal security.
The Discipline Challenge
The greatest risk is that fiscal discipline erodes as surpluses accumulate. Pressure to hire more government employees, increase subsidies, expand social spending, and fund prestige projects is politically natural but economically dangerous. Oman needs a formal fiscal rule – such as a spending ceiling linked to a conservative oil price assumption – to institutionalise discipline beyond the commitment of individual leaders. The current surplus should be treated as a temporary gift from global energy markets, not a permanent income increase.