Oman: how quickly will reforms happen?

Will the protests and the Corona pandemic precipitate fundamental economic reforms in Oman? This is the question Ahmad Abdul-Rahman asks.

In the last week of May 2021, a number of provinces of the Sultanate of Oman
witnessed mass gatherings and protests, most of which were peaceful. The main demand was for job opportunities. These protests resulted in the issuance of Sultani orders to expedite recruitment procedures, along with a package to support employment in the private sector.

These protests were the first gatherings of their size since 2011, reflecting the distress many people were in. This was caused by a number of economic pressures such as inflation and the rise of unemployment.

Economic pressures strengthened when the Corona pandemic swept the country and a new government in the Sultanate was installed. Therefore, 2021 marked the beginning of transformation in Oman, politically and socially. The year also marked an opportunity to restore balance between the government and the private sector and civil society: both institutions and individuals.

The Corona pandemic began impacting Oman's economy at the end of the first quarter of 2020. As a consequence, it changed the speed of the medium-term financial plan that was presented to Sultan Haitham bin Tariq in February of that year. With the emergence of the Corona pandemic, the new plan had to take into account its impact on the economy.

Moreover, because the government was in dire need of the resources that the private sector possesses for investment and to ensure maximum returns for the economy as a whole, it provided concessions and guarantees to the private sector. This sector is expected to bear the burden of employment, investment, and economic diversification.

The government must provide economic reforms, including financial reforms, to the private sector. The main reason the government started work on its medium-term fiscal plan in September 2019 was to ensure these reforms were implemented. It must also rein in government companies that have expanded over the past decade.

The pandemic has created some new opportunities as well as putting pressure on other sectors. In his speech on the 15th National Day of the Sultanate (18th November), Sultan Haitham said that the economic crisis resulting from the pandemic "accelerated the pace of transformation to digital work and the employment of technology, in the fields of government and private work".

The economic plan has accelerated the imposition of income tax on high-income earners to 2022, instead of its previously proposed date of 2023. After accelerating the implementation of the aforementioned tax, the plan expects that government revenues will reach 122 million Omani riyals ($317 million) in the first year and 450 million Omani riyals ($1.17 billion) in the second year.

The effects of the pandemic have been felt across most of the economy, draining the liquidity of the public and private sectors. The measures adopted by the government stopped the privileges of senior state officials. These measures included mandatory retirement for those people with long service in the government sector; merging ministries whose jurisdictions have overlapped or converged, and reconsidering government contracts.

The measures turned government-spending items into a harsh austerity programme, negatively affecting the flow of money that was reaching the private sector in general and small and medium enterprises in particular, due to the postponement or suspension of government projects.

Hence, it was necessary to reduce government spending and boost revenues. It was also necessary to extend the social protection system to absorb part of the repercussions of the economic crisis, which resulted in a shortage of jobs and increased the number of job seekers. This also coincided with the gradual lifting of subsidies for electricity and water and the introduction of value-added tax at a rate of 5% in the current fiscal year.

The economic stimulus package was announced in March 2021 through which the government grants tax breaks and banking facilities, and preferential measures to investors - whose investments exceed USD 1million – to achieve economic diversification in the country's five-year plan.

However, the challenges of social security related to employment remain. This is despite government promises regarding employment as well as providing opportunities for training, rehabilitation or work. The reality of official data reflects the high rate of job seekers and slow economic growth.

With the government's desire to improve its administrative structure, the number of Omanis in the civil public sector is declining. Moreover, the government does not intend to appoint or replace Omanis in government jobs.

It is too early for the economic stimulus package adopted in March 2021 to have had an impact on the economy. It is also too early for the social protection initiatives announced in April 2021 to have had an impact on the economy in general and on the labour market in particular.

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Friday, 24 September 2021