PHOTO
22 June 2016
Muscat - The International Monetary Fund (IMF) has urged member states of the Gulf Cooperation Council (GCC), which includes the Sultanate Oman, to press ahead with their privatisation programmes as a means to ameliorate their beleaguered fiscal positions. It is one of many recommendations articulated in a newly published paper, titled, 'Learning to Live with Cheaper Oil: Policy Adjustment in Oil-Exporting Countries of the Middle East and Central Asia'.
Referencing plans by Oman, among other GCC states, to step up their privatisation strategies, the multilateral financial institution noted that privatisation of state-owned enterprises had the potential to improve productivity and efficiency, while also raising temporary financing for budgetary shortfalls.
However, efforts to this end have been sluggish thus far, the Fund lamented. "Implementation has often moved slowly, particularly in GCC countries where supporting institutional frameworks have sometimes been lacking, and where privatisation programmes have often focused on already-successful enterprises. Nonetheless, GCC divesture programmes have, in the past, managed to generate significant receipts from only a handful of high value operations," the IMF paper said.
Earlier this year, Darwish bin Ismail al Balushi, Minister Responsible for Financial Affairs, had outlined plans for the divesture of government stakes in three unnamed state-owned enterprises during the course of the year. No timeline was given for the divesture plan.
Omani government stakes in state-owned listed enterprises total around $2.9 billion in value, corresponding to roughly 4.9 per cent of the country's gross domestic product (GDP), according to the IMF.
Within the hydrocarbon sector, national oil companies (NOC) hold particular promise as candidates for privatization, the paper said. With a net present value amounting to a staggering 350 - 700 per cent of the bloc's aggregate GDP, most of the NOCs are well-run and enjoy a high degree of operational independence. However, private participation would help boost productivity in the upstream sector, enhance transparency and clarify fiscal linkages, it noted.
Outside the hydrocarbon sector, the GCC is home to a number of key enterprises that might also gain from privatisation, the paper said. "Compared with other countries in the region, where the state has a stake in hundreds of poor-productivity firms, potential candidates in the GCC are concentrated in a few critical sectors, which have been largely untouched by previous privatization efforts. In particular, the state still dominates the provision of utilities, some of which remain dependent on government support--in addition to the implicit assistance they receive from subsidized fuel," it stated. Importantly, divesture is known to help privatized firms become more efficient and profitable, according to the IMF.
"The impact of restructuring on employment is sometimes negative in the short term, but the longer-term impact is mostly positive owing to an expansion of operations.
"On the fiscal side, privatization has generally had a positive impact on revenue, while also resulting in a marked decline in transfers. The consolidated accounts of the SOE sector generally show a sizable decline in these firms' overall deficits, and a drop in the implied cost of quasi-fiscal operations," it said.
The paper acknowledges that privatization could have other implications that require a policy response. "The macroeconomic impact will depend on the origin of the buyer, the degree of capital mobility, whether receipts from privatisation are saved or spent, and the exchange rate regime. In particular, managing large receipts may have implications for local liquidity, and capital inflows may impact the real effective exchange rate.
"Macroeconomic policy can be framed to minimise these effects. Concerns about job losses should be addressed ideally in the context of an overall policy to enhance employment in the private sector and other labour market policies such as severance payments, public works programmes, and retraining opportunities," it observed.
Muscat - The International Monetary Fund (IMF) has urged member states of the Gulf Cooperation Council (GCC), which includes the Sultanate Oman, to press ahead with their privatisation programmes as a means to ameliorate their beleaguered fiscal positions. It is one of many recommendations articulated in a newly published paper, titled, 'Learning to Live with Cheaper Oil: Policy Adjustment in Oil-Exporting Countries of the Middle East and Central Asia'.
Referencing plans by Oman, among other GCC states, to step up their privatisation strategies, the multilateral financial institution noted that privatisation of state-owned enterprises had the potential to improve productivity and efficiency, while also raising temporary financing for budgetary shortfalls.
However, efforts to this end have been sluggish thus far, the Fund lamented. "Implementation has often moved slowly, particularly in GCC countries where supporting institutional frameworks have sometimes been lacking, and where privatisation programmes have often focused on already-successful enterprises. Nonetheless, GCC divesture programmes have, in the past, managed to generate significant receipts from only a handful of high value operations," the IMF paper said.
Earlier this year, Darwish bin Ismail al Balushi, Minister Responsible for Financial Affairs, had outlined plans for the divesture of government stakes in three unnamed state-owned enterprises during the course of the year. No timeline was given for the divesture plan.
Omani government stakes in state-owned listed enterprises total around $2.9 billion in value, corresponding to roughly 4.9 per cent of the country's gross domestic product (GDP), according to the IMF.
Within the hydrocarbon sector, national oil companies (NOC) hold particular promise as candidates for privatization, the paper said. With a net present value amounting to a staggering 350 - 700 per cent of the bloc's aggregate GDP, most of the NOCs are well-run and enjoy a high degree of operational independence. However, private participation would help boost productivity in the upstream sector, enhance transparency and clarify fiscal linkages, it noted.
Outside the hydrocarbon sector, the GCC is home to a number of key enterprises that might also gain from privatisation, the paper said. "Compared with other countries in the region, where the state has a stake in hundreds of poor-productivity firms, potential candidates in the GCC are concentrated in a few critical sectors, which have been largely untouched by previous privatization efforts. In particular, the state still dominates the provision of utilities, some of which remain dependent on government support--in addition to the implicit assistance they receive from subsidized fuel," it stated. Importantly, divesture is known to help privatized firms become more efficient and profitable, according to the IMF.
"The impact of restructuring on employment is sometimes negative in the short term, but the longer-term impact is mostly positive owing to an expansion of operations.
"On the fiscal side, privatization has generally had a positive impact on revenue, while also resulting in a marked decline in transfers. The consolidated accounts of the SOE sector generally show a sizable decline in these firms' overall deficits, and a drop in the implied cost of quasi-fiscal operations," it said.
The paper acknowledges that privatization could have other implications that require a policy response. "The macroeconomic impact will depend on the origin of the buyer, the degree of capital mobility, whether receipts from privatisation are saved or spent, and the exchange rate regime. In particular, managing large receipts may have implications for local liquidity, and capital inflows may impact the real effective exchange rate.
"Macroeconomic policy can be framed to minimise these effects. Concerns about job losses should be addressed ideally in the context of an overall policy to enhance employment in the private sector and other labour market policies such as severance payments, public works programmes, and retraining opportunities," it observed.
© Oman Daily Observer 2016
