Fiscal space Oman needs to maintain social welfare

The Sultanate of Oman made exceptional progress in human-capital development in only 50 years. These achievements are the result of a deliberate and large public investment in the social sectors, enabled by the significant revenue streams from oil and gas.

With the persistently low oil price of 2020 and the broader impacts of the COVID-19 pandemic, Oman faces a serious fiscal challenge and a perceived need to accelerate economic diversification away from hydrocarbon dependence.

The need to restore fiscal balance while providing incentives for economic change is encapsulated in the recently published Medium-Term Fiscal Plan (MTFP) under the Tawazun programme. Fiscal space is expected to remain tight for years as the state’s role evolves from a generous provider of social welfare to one that oversees a dynamic economy where there is a minimal role for the state. The target is to reduce public expenditure as a share of GDP to one of the lowest in the OECD by 2040.

The policy puzzle this project tries to resolve is how universal access to health and education can be maintained in a tight fiscal space when the size of the state is significantly reduced.

In partnership with Oxford Policy Management (UK) and The Firm (Oman) we carried out a range of studies from puzzles macro-fiscal analyses, over assessments of the potential financing from Islamic funding, institutionalised corporate social responsibility, privatisation and public-private partnerships, all resulting in a comprehensive fiscal space analysis, projecting expenditures for health and education to 2040.

This analysis provided Omani decision-makers with new insights in the relationship between today’s policy options and future levels of public expenditure for health and education.