Oman will start reforming its expensive system of subsidies in January by shifting the focus of its electricity and water spending to its poorest citizens, the government said on Sunday.
The plan, along with labour laws, privatisations and new taxation, is aimed at reducing fiscal deficit expected to come to 10% of economic output this year, according to an International Monetary Fund forecast.
The government said the new subsidy system for electricity and water will exclude households earning more than 1,250 rials ($3,260) a month.
Subsidies for electricity and water total about $1.95 billion, according to the 2020 budget.
Electricity subsidies will be removed completely by January 2021 for big non-residential consumers, including industrial, tourism, commercial and government entities. Utility tariffs will be raised gradually for all until the subsidies are completely lifted in 2025, and a national support system will be implemented to help low-income consumers.
To cushion the blow for poorer Omanis, the Sultanate will adopt a new tariff structure aimed at helping low-income households. The program, based on a 2019 census, will take into account the monthly income of households as well as the number of people living at a single residence.
For example, households of nine people that earn 1,250 rials a month or less would be eligible for a subsidy. Households with monthly earnings above that would not qualify for relief, according to the ministry.
Oman’s electricity subsidy bill alone surged 15% from 2016 to 2020 and currently amounts to some 750 million rials annually. That’s about 5% of the budget and about 20% of the forecast deficit for this year, the ministry said.
Left untouched, it said, the electricity subsidy will hit 900 million by 2025.
The new plan will start running in January and eligible Omanis have to apply starting on Sunday.
It was unclear if foreign residents will also benefit from the new system.
Low oil prices and the economic slowdown caused by the coronavirus outbreak have strained the finances of Oman, a relatively small energy producer.
New ruler H M Sultan Haitham Bin Tarik has shaken up the government and state entities, and in October approved introducing value-added tax from next April to boost state revenues.
(Reuters/Bloomberg)
