Question

With decreased oil prices Oman government is challenged in raising finances for public expenditures. Explain how the government could raise finances through the Central Bank of Oman and the present difficulties to such raising of funds

Answer 1

The oil prices are down drastically, thus the income or revenue level of Oman government has gone down exceptionally. The level of social spending and the defense budget is already too high. The Oman government was already spending a very high amount on social programs to avoid the Arab spring-like situation.

The COVID-19 has called for the further rise in the government spending. Thus, now Oman government can go for the help from the central bank of country.

Here, the one option is printing new money. When the central bank prints the new money, it does not put pressure on the market demand for the fund. Thus, government can increase its spending without crowding out the private investment.

But the printing money or borrowing from the central bank could give rise to the inflation level in economy. The high inflation might destabilize the economy.