São Paulo – Low oil prices should affect Oman’s economic results in 2014 and 2015. Despite forecasting a 4.6% growth of the Gross Domestic Product (GDP) for the country this year, the IMF says that the local economy could suffer the impact of a decline in revenues with a deficit in external and current accounts. The IMF’s assessment of Oman’s economy was concluded on April 30th and released this Tuesday (5th) by the institution. Among the suggestions made by the Fund for Oman to lessen the impacts of cheap oil were raising taxes and fiscal adjustment.
“Because much of the oil price decline is expected to be sustained, any delay in starting medium-term fiscal reforms would further worsen the fiscal outlook and force deeper and less gradual adjustments later with a larger impact on growth”, says the document released by the Fund’s executives.
Among the measures recommended by the Fund to local government are to curtail the increase in government jobs in civil and defense services, gradually phase out subsidies and rationalize defense spending, among others. “Undertaking these reforms in a phased manner and preserving room for capital expenditures (construction works, equipment purchase, equity holdings) would limit the downward drag on growth”
Another suggestion in the IMF document is for Oman to reconsider tax rates exemptions for corporations, expand tax categories and identify new sources such as selected excises, VAT and property taxes. The document also states that implementing a tax on outward remittances “is not an efficient way” because it has an insignificant revenue-generating potential and could reduce overall competitiveness of the private sector. “Instead, introducing income tax for nationals and expatriates would be less distortive”, says the Fund.
The document also says that Oman’s government needs to diversify the economy to reduce the dependency on oil revenues and generate jobs for Omani citizens. It also needs to improve business environment. The Fund estimates that the country ended 2014 with 1% inflation and hopes for the indicator to remain under 3% in the medium term.
*Translated by Sérgio Kakitani
