Oman: Will the Protests and Covid-19 Lead to Structural Economic Reform?

The recent protests and the effects of the pandemic have emphasized the need to expedite structural economic reforms.



FATMA AL-ARIMI
July 07, 2021
عربي

The onset of the Covid-19 pandemic coincided with the beginning of Sultan Haitham Bin Tariq’s reign in January 2020. In his second speech, Sultan Haitham stressed the need for streamlining procedures, fighting corruption, and improving governance, integrity, and accountability as well as restructuring the state’s administrative apparatus and modernizing its legislation. The transfer of power was seen as an opportunity to revive Oman’s economy, most importantly by restoring the balance among the government, private sector, and civil society. More recently, protests across Oman have reignited the push for a better economic situation with one clear demand: employment.

Although the country adopted Oman Vision 2040, a long-term strategic plan with economic and social goals, the government needed an emergency mid-term financial plan to alleviate current fiscal issues and to pave the way for the vision's implementation.1 In September 2019, the government began working on a fiscal plan to address Oman’s economic challenges, especially those that arose during the country’s ninth five-year plan. The key problem was the expansion of the administrative apparatus during the last few years of the late Sultan Qaboos’ reign, when he passed many tasks off to people whom he trusted to run the affairs of the state. The first draft of the Medium-Term Fiscal Plan (MTFP), referred to as Tawazon (“Balance”), was presented to Sultan Haitham in February 2020.2 However, the effects of the pandemic were not felt until the end of the first quarter of 2020, so the plan did not include any measures to address related economic challenges. As a result, a new objective was added to the plan, which aimed to balance the state budget in light of historic challenges and included steps to account for the financial impact of the pandemic while still achieving the outlined goals within the envisioned timeline.3

Despite having a plan, the government was not able to mitigate the effects of the pandemic on the economy. The impacts infiltrated the economy and drained liquidity from the private sector, lowered the morale of the public sector, and eliminated jobs for locals. The government suspended privileges of senior state officials, retired 70 percent of its tenured employees, abolished or merged several councils and ministries, and revised government contracts. Such measures, which put government spending on a strict diet, negatively affected the flow of capital to a government-driven economy and played out in the private sector. The effects were seen most at the small and medium enterprise level because of several shutdowns as well as the suspension or cancellation of government projects.

Thus, the government’s attempts to mitigate the effects of the pandemic actually exacerbated the economic situation, making clear that the government needed to find a way to balance competing priorities and needs. On one hand, the government must continue to reduce government spending and boost revenues if it wants to meet the goals set forth in the fiscal plan as well as Oman Vision 2040. On the other hand, it needs to strengthen and broaden the social security system to mitigate a higher unemployment rate as well as the effects on the population of the gradual lifting of subsidies for electricity and water and the introduction of a value-added tax (VAT) that came into effect this year.

In an attempt to address continued economic decline, a new economic stimulus plan was announced in March 2021. The plan enabled the government to grant tax exemptions, banking facilities, and preferential measures to large investors in the sectors targeted for economic diversification in the current five-year plan.

Despite the attempt to stimulate economic growth, challenges related to employment still remain. Government promises of employment, vocational training, and work opportunities have clearly done little to help, as official data show continued high unemployment, an indicator of an economic slowdown.4 As the government aims to streamline the administrative structure, the number of Omanis in the public sector is declining. The civil unrest in May 2021 resulted in royal orders to increase job opportunities in the public and private sectors. However, it seems that the government only intends to replace essential public sector employees while relying on the private sector to create most jobs.

Not only will these changes take time to produce positive results, but the transformation of Oman’s economy will not be complete until the relationship among the government, the private sector, and civil society is rebalanced. The current relationship is not conducive to propelling Oman’s economy to the envisioned success. Facing a dire need for more private sector investment and employment, the government is under pressure to better its relationship with the private sector and provide incentives for collaboration. The private sector is expecting the government to put a leash on the growing number of State-Owned Enterprises (SOEs) that were established over the past decade. Additionally, the private sector is demanding that its input be reflected in the government’s decisions and not merely used for show in a superficial demonstration of partnership. This happened in 2016 when the government launched an economic diversification scheme (Tanfeedh) with hundreds of private sector representatives. Participants’ optimism faded quickly, however, as most of what was agreed on has yet to be implemented.

On the civil society level, citizens have yet to feel that they are a part of the decision-making process. As the government moves to enact more legislation that directly affects citizens, the public’s demands to be more engaged in the policy process have increased. Representation of citizens’ demands is crucial to achieving Oman’s economic goals because of the significant role citizens play in revenue generation for the economy. Additionally, not only will citizens’ participation help strengthen the middle class, but it will also increase its trust of the government.

The new Sultan has acknowledged the need to rebalance the relationship among the government, private sector, and civil society by presenting new expectations for a symbiotic working relationship that is based on each side playing its part. If Oman is to improve its economic situation and meet the goals of Oman Vision 2040, distrust among the three parties cannot continue as it has over the last few decades and each party must meet its outlined expectations. Only time will tell if these newly remodeled partnerships will last and bring about the change needed.


Fatma al-Arimi is an Omani journalist and the managing director at The Media Centre (TMC).

NOTES

1 The work on Vision 2040 draft was supervised by Haitham Bin Tariq since 2013, years before becoming the Sultan. In December 2020, Haitham, as a Sultan, approved the vision.

2 Arabic source: Nasser al-Jashmi, the sec-gen of Oman's Ministry of Finance, in an interview to the state TV

3 These challenges were accumulated in the past. The financial challenges were there in 2011, became clearer in 2015, and the government started addressing them by initiating Tanfeedh in 2016 and Tawazon in 2019.

4 According to the monthly statistical bulletins issued by the National Center for Statistics and Information (NCSI), the rate of job-seekers increased from 2.1% in May 2020 to 4.9% in May 2021. The number of job security grant recipients doubled between November 2020 and March 2021.


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