Oman’s 2015 budget, announced on 1 January, will be the country’s largest ever, with spending raised by 4.5 per cent to RO14.1bn ($36.7bn).

Taking the drop in oil prices into account, the sultanate plans to run a deficit of RO2.5bn, or 8 per cent of GDP. About 79 per cent of government revenues come from crude sales. Revenues are projected to decline by 1 per cent in 2015, to RO11.6bn. Muscat expects to finance the deficit by issuing long-term Islamic bonds and instruments, activating the domestic capital market, as well as using its reserves.

“Oman and Bahrain are in the weaker group of the GCC for sovereign debt,” says Steffen Dyck, vice-president and senior analyst at the US’ Moody’s Investors Service. “But on a global scale, they aren’t facing serious issues. Government bond auctions are oversubscribed, so there’s strong demand for Omani sovereign debt.” The capital investment budget stays at RO3bn as Oman focuses on diversifying the economy away from oil and gas. It will press ahead with important infrastructure and diversification projects including the national railway, the dualisation of the Adam-Thumrait road and wastewater projects.

“Capital spending is needed for development, so key infrastructure and diversification projects will go ahead,” says Dyck. “Muscat is also feeling significant pressure to spend on social programmes.” The education budget has more than doubled to RO3bn, some 20 per cent of total spending, reflecting a desire to invest in human capital.

Oman’s State Council had advised cuts to non-essential projects and subsidies, and increased taxation to reduce the deficit in late 2014. However, subsidies are expected to still form 13 per cent of spending at RO1.8bn.

“It was necessary to take some temporary precautionary measures… to maintain the integrity and stability of the financial and economic situation,” said a government statement. “These will not affect the aspects related to citizens living [sic], the provision of basic services [and] employment both in the public and the private sectors.”

If the oil price remains under $60 a barrel in the long term, significant cuts will be needed in future budgets. Muscat has not stated what oil price it has based its calculations on. “There has been a fast-paced spend due to the surplus,” says a consultant working in Oman. “There is no visible slowdown yet, but it’s a worry for next year.”

The privatisation of state-owned companies will move forward by 2017.