Are We Witnessing an Institutional Shakeup in Oman?

A year has passed since Sultan Haitham bin Tariq Al Said acceded to power in Oman following the death of his cousin, Sultan Qaboos bin Said Al Said, on January 10, 2020. Sultan Qaboos had ruled Oman for almost half a century since July 1970 and spearheaded a ‘renaissance’ that transformed Oman into a modern state. Both the length of Sultan Qaboos’s rule and his reluctance to delegate authority meant that the transition to new leadership was always likely to involve significant changes in the style and substance of decision-making – especially against the backdrop of Oman’s rapidly deteriorating financial position and the economic dislocation caused by COVID-19. And yet, while the pandemic was truly a ‘black swan’ event that hit Oman (and the rest of the world) just as the transition to the post-Qaboos era was beginning, Sultan Haitham has responded with measures that are as intriguing as they are potentially far-reaching.

In a pair of decrees announced on January 11, 2021, the first anniversary of the morning last year when the envelope containing Haitham bin Tariq’s name as Sultan Qaboos’s choice of successor was opened, Sultan Haitham issued a new Basic Law of governance and administration to supersede the Qaboos-era Basic Law of 1996, as well as a new Council of Oman law that updated the rights, duties, terms of reference, and conditions of membership of Oman’s bicameral parliament. Media attention focused on the alteration of succession arrangements to include the designation of an heir apparent, namely the eldest son of the Sultan once he reaches the age of 21. This places 30-year-old Dhi Yazan bin Haitham Al Said, who has served as Minister of Culture, Sports, and Youth since August 2020, formally into the line of succession after the 65-year-old Sultan Haitham.

The formalization of the system of succession should assuage concerns expressed periodically during Sultan Qaboos’s reign by external observers at the apparent lack of certainty and predictability in long-term planning, although the 2020 transition was as smooth as it was quick and decisive. It detracts, however, from the signs of significant shift in policy focus that Sultan Haitham has overseen during his first year in power which, if carried through, could alter Oman’s institutional arrangements in meaningful ways. Moreover, the pace of policy announcements has quickened markedly over the past twelve months, as the new Sultan and revamped government have responded to multiple challenges, including some, such as mounting fiscal pressures, which had built up over a period of years.

Muscat’s Money Problems

Oman faces a difficult fiscal situation which has been magnified considerably by the economic fallout from the COVID-19 pandemic. Government debt as a ratio of GDP has risen rapidly since oil prices crashed in 2014, from 4.9 percent that year to 31.5 percent in 2016, 47.5 percent in 2018, 60 percent in 2019, and a forecast of more than 80 percent of GDP by the end of 2020. A year into the coronavirus crisis, Oman’s fiscal deficit is projected to have grown from 7.1 percent in 2019 to 18.3 percent in 2020. The Omani government unveiled a four-year Medium-Term Fiscal Plan in November 2020 which set out measures to cut the deficit and raise revenues, especially non-oil revenues, by 2024. The measure which attracted the most attention was an announcement that an income tax would be imposed on high earners beginning in 2022. This came several weeks after a separate confirmation that a Value Added Tax (VAT) of 5 percent on many goods and services, initially planned for 2018, would belatedly come into force in April 2021.

The imposition of new forms of taxation – direct as well as indirect – is a critical element of the plan to achieve fiscal sustainability in the 2020s. In particular, the income tax breaks new ground in the six Gulf States and marks a departure from the regional norm in terms of what was considered politically feasible in a system in which the state has acted as the distributor to, rather than an extractor of wealth from, its citizens. For this reason, the rollout of Oman’s income tax will be watched closely by regional and international observers, although the lack of any real pushback so far suggests that public attitudes toward taxation have shifted amid recognition that Oman’s present financial situation is no longer sustainable in the long (or even the short) run.

A New State Model?

Indeed, what makes the Omani case so intriguing is that leaders, including Sultan Haitham himself, have used language over the past year to describe the direction of travel that is strikingly distinct not only for Oman but also for the region. In his first major address as Sultan, in February 2020, the Sultan noted the importance of “citizens’ partnership” in the next phase of nation building. In his National Day speech on November 18, the Sultan referred to steps underway to “revise the legislating and auditing measures and develop instruments of questioning and accountability so that they might constitute a cornerstone for future activity in Oman.” In the same speech, Haitham also announced the establishment of a Social Security scheme intended to form “an overarching canopy of social protection.”

Oman’s Foreign Minister, Sayyid Badr bin Hamad al-Busaidi, used an interview with local media in Muscat in December 2020 to make the point that the redesign of Omani fiscal policies would be based on the principle that “those most in need of support will always receive it, and that those most able to contribute should always do so.” To that end, al-Busaidi stated that social security and personal taxation would be designed “in such a way as to ensure that those who enjoy wealth and privilege are able to make their full contribution to the collective good.” Speaking the same month at the Manama Dialogue on regional security in Bahrain, al-Busaidi added that the scope of ‘what security means today’ should be expanded to include “the everyday security of those whose daily lives depend upon our ability to distribute our collective resources in a manner that is widely perceived by a strong social consensus, as just and fair.”

Consistent Signs of Shakeup

Specific details about the income tax and social security scheme are still to be released, and it was notable that when the plans for VAT were laid out, they included the largest number of exemptions in any of the Gulf States that have so far implemented VAT, thereby lessening its impact on individuals’ finances. However, statements such as al-Busaidi’s suggest that the leadership in Muscat is fully aware of the significance of the shift toward personal taxation, and of the new obligations that such a move will entail. It is still too early to tell whether the Oman of Sultan Haitham’s era will evolve into a form of constitutional monarchy until the policies are implemented and put into practice.

With that said, the moves announced so far are consistent with the signs of a wider shakeup of institutional and governing arrangements that is imprinting Sultan Haitham’s stamp on Oman as firmly as Sultan Qaboos did in the years after he came to power in 1970. The past year has seen a careful restructuring of government ministries, including the Ministry of Energy and Minerals, to better align with contemporary public policy challenges, the creation of new institutions such as the Oman Investment Authority and Energy Development Oman, and the delegation of powers to a capable younger generation of officials both in Muscat and across the country’s eleven governorates. While the roots of several of these policy decisions date to the final period of Sultan Qaboos’s life, the pace of change under Sultan Haitham has accelerated significantly and makes Oman a country to follow in the eventual post-COVID world.

Dr. Kristian Coates Ulrichsen is a Baker Institute fellow for the Middle East and Non-Resident Senior Fellow at Gulf International Forum. Working across the disciplines of political science, international relations and international political economy, his research examines the changing position of Persian Gulf states in the global order, as well as the emergence of longer-term, nonmilitary challenges to regional security. Previously, he worked as senior Gulf analyst at the Gulf Center for Strategic Studies between 2006 and 2008 and as co-director of the Kuwait Program on Development, Governance and Globalization in the Gulf States at the London School of Economics (LSE) from 2008 until 2013.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.