Overview
Fiscal sustainability is the defining challenge for GCC economies as they navigate the energy transition. Each Gulf state faces the same fundamental question: can government revenues diversify fast enough to maintain public spending and social contracts as oil and gas revenues face long-term structural decline? The metrics that matter most are fiscal breakeven oil prices, non-oil revenue as a share of total revenue, sovereign debt levels, and sovereign wealth fund buffers.
Oman’s Position
Oman faces the tightest fiscal constraints in the GCC. Its fiscal breakeven oil price has historically been among the highest in the region, frequently exceeding USD 70-80 per barrel. The introduction of VAT in 2021, subsidy reforms, and expenditure rationalisation have brought the breakeven price down significantly. Government debt rose sharply from under 5 percent of GDP in 2014 to over 60 percent by 2020, before declining thanks to higher oil prices and fiscal consolidation. Non-oil revenue remains a relatively small share of total government income.
Regional Comparison
Abu Dhabi and Qatar enjoy the strongest fiscal positions, with massive sovereign wealth funds and low breakeven prices (often below USD 50 per barrel). Saudi Arabia’s breakeven remains elevated due to massive capital spending on Vision 2030 megaprojects, but its scale provides fiscal space. Kuwait benefits from low costs but faces political obstacles to reform. Bahrain, like Oman, has faced fiscal stress, requiring GCC support packages. Oman’s fiscal position has improved markedly since 2020 but remains more vulnerable than wealthier Gulf peers.
Trajectory
Oman’s Medium-Term Fiscal Plan targets a balanced budget by 2025 and sustained fiscal discipline thereafter. Key levers include broadening the tax base (VAT, potential income tax on high earners), continued subsidy reform, public expenditure efficiency, and growing non-oil revenues through tourism, logistics, and manufacturing. The Oman Investment Authority’s consolidation of sovereign assets provides a clearer picture of the national balance sheet. Sustaining fiscal discipline when oil prices are high – resisting the temptation to increase spending – will be the true test.