Overview
Oman’s fiscal position has oscillated between surpluses during high oil prices and deficits during downturns. Understanding these cycles is critical for evaluating fiscal sustainability and the effectiveness of the Medium-Term Fiscal Plan.
Fiscal Surplus Periods in Oman
Oman experienced fiscal surpluses during the oil boom years of 2005 to 2014, when Brent crude averaged above USD 100 per barrel. Surpluses enabled infrastructure investment, social spending expansion, and reserve accumulation. However, these periods also encouraged spending habits and subsidy commitments that proved difficult to sustain when prices fell. Surplus periods masked structural fiscal vulnerabilities.
Fiscal Deficit Periods in Oman
Fiscal deficits emerged sharply after the 2014 oil price collapse, peaking at roughly 20 percent of GDP in 2016. Oman financed deficits through international bond issuance, drawing on reserves, and asset sales. The deficit period forced structural reforms including subsidy cuts, VAT introduction, and expenditure rationalisation. By 2022, higher oil prices and fiscal reforms returned the budget to surplus.
Key Differences
Surplus periods encourage spending expansion and create fiscal commitments that are politically difficult to reverse. Deficit periods force painful but necessary reforms. Oman’s experience shows that procyclical spending during surpluses amplifies the pain of subsequent deficits. The fiscal breakeven oil price, which reached USD 87 per barrel, is a key indicator of structural fiscal health.
Verdict / Bottom Line
Oman’s Medium-Term Fiscal Plan aims to break the boom-bust cycle by maintaining fiscal discipline regardless of oil prices. Locking in reforms achieved during deficit periods and avoiding spending expansion during surpluses is the key challenge. A fiscal rule linking spending to a conservative oil price assumption would institutionalise this discipline.