Oil Prices and Public Finances: Why Oman’s Future Depends on Smart Fiscal Policy

 Farah Al-Bahrani

Oman’s economy has long been powered by oil. For decades, high oil prices allowed the government to fund public services, invest in infrastructure, and provide jobs. But this model is risky - and increasingly unsustainable.

Oil prices are volatile. When they fall, Oman earns less money from oil exports. This leads to a fiscal deficit - when a government spends more than it earns in a given year. In 2020, after global demand for oil collapsed during the pandemic, Oman’s fiscal deficit reached nearly 20% of its GDP.

In response, Oman introduced a Medium-Term Fiscal Plan (2020–2024). This plan was part of its fiscal policy - the way a government manages public money through taxation and spending to influence the economy. The goal was to reduce the deficit, control spending, and raise income from other sources besides oil.

One major example of fiscal reform - changes in how a government collects and spends money - was the introduction of a 5% Value Added Tax (VAT) in 2021. This was the first time Oman taxed consumer goods and services, helping generate non-oil revenue.

However, reform is not easy. Over 70% of Omani citizens work in the public sector. Reducing government spending or jobs can affect household income and social stability. Yet, without reform, Oman risks deeper long-term challenges.

The government’s long-term strategy, Vision 2040, aims to build a stronger, more diverse economy by investing in tourism, green energy, and logistics. But for this to work, Oman needs steady and reliable sources of public income - not just oil.

In short, oil price changes affect how much money Oman has to spend. That’s why fiscal policy matters. It helps manage risk, attract investment, and secure the country’s future. Oman is learning and leading in how small states can adapt in a changing global economy.

About the Author:
Farah is studying International Relations with Business Management at Queen Mary University of London, with a focus on political economy, diplomacy, and public sector reform in the Middle East. Farah's email address: f.t.a.al-bahrani@hss23.qmul.ac.uk