Oman – Nagging Succession Uncertainty

Concerns surrounding the uncertain health status of Sultan Qaboos bin Said Al-Said may have been eased in mid-November, when the 76-year-old leader made his first public appearance in a year for the country’s National Day celebration. Qaboos spent eight months in Germany for medical treatment for an undisclosed illness in 2014–2015, and when last seen, he was reported to be looking frail and very thin. Rumors that he was suffering from colon cancer stirred widespread debate about royal succession, an issue shrouded in mystery given that the sultan has no natural heir.
He returned to Germany for a brief medical checkup in April, and at his most recent appearance, looked to be in better shape. Even so, Qaboos is getting on in years, and healthy or not, the fact of his mortality and the lack of clarity about who will come after the only leader that a majority of Omanis has ever known will remain a source of anxiety, and a main source of political risk in one of the most stable countries in the region.
The risk is compounded by the fact that Qaboos is not only the prime minister, but is also the de facto minister of defense, finance, and foreign affairs, with appointed ministers in those departments functioning more as administrators than decision makers. Modern-day Oman is very much the creation of its ruler, who has taken no overt steps to prepare a protégé to carry on his work.
Succession-related anxiety among Omanis and the country’s regional and global allies has been compounded by the economic stresses created by the steep fall in oil prices since mid-2014, which has resulted in an enormous decrease in state revenue, nearly all of which is derived from the production and sale of oil and natural gas. Policy makers have responded by slashing state expenditures, including deep cuts in spending on subsidies for fuel and electricity, but the fiscal deficit ballooned to 18.6% of GDP last year, and with oil revenues on track to decrease by more than 10% (year-on-year) in 2016, any narrowing of the fiscal deficit this year will be limited.
The government is planning to increase the corporate tax rate in 2017, and Oman is scheduled to introduce a VAT in 2018, as part of a coordinated effort with its partners in the GCC. However, the budget balance will remain deep in the red as long as oil prices remain at or near current levels, and cuts in spending and tax increases will sap the vigor of non-hydrocarbons economic activity, holding growth rates below the historical trend.
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