Oman Economic Report: Oman Enters the New Year with High Expectations of Further Success in Achieving Its Goals of Diversification, Privatisation and Omanisation. (Business & Finance)
Siddiqi, Moin, The Middle East
The sultanate of Oman, an upper middle-income country endowed with relatively modest hydrocarbons resources has achieved impressive socio-economic advancements over the past three decades since Sultan Qaboos bin Said came to power.
Today, Oman boasts an open, liberal economy, while its physical infrastructure and public services are ranked among the best in the developing regions. The World Health Organisation puts Oman in the top-10 nations in terms of the efficient allocation of healthcare resources. The country's transformation since the early 1970s is remarkable, considering the country was described during the 1950s as a "medieval state," lacking even a minimum basic infrastructure.
Economic diversification, privatisation and Omanisation are the cornerstones of the present five-year (2001-05) development plan. Since the mid-1990s, Oman has completed major capital projects, notably its liquefied natural gas (LNG) programme and the Salalah container port--a very successful world class trans-shipment hub in the Arabian Sea, as well as implementing economic reforms, especially the restructuring of public utilities.
The economy has expanded by 76% over the past decade, thanks to rising crude oil prices and, more recently, LNG production/exports, the buoyant services industry and higher infrastructural investments. Real gross domestic product (GDP) growth between 1997-2001 averaged 4.2% per annum, according to the IME This year, higher oil revenues and the resulting increase in recurrent and capital expenditures and lower domestic interest rates should underpin GDP growth. The latter has encouraged consumer spending. Meanwhile, stronger energy prices have bolstered the state's coffers, thereby injecting fiscal stimulus into non-oil sectors. The government's contracts continue to be an important engine of economic growth, especially in the new industrial areas.
Oman, an independent oil producer maintains informal cooperation with the OPEC cartel on output/pricing policies, consequently oil production was cut by 40,000 barrels per day (b/d) in support of OPEC's supply-restraints during the first-half of 2002. But lower output had affected growth in the vital energy sector and export-volume gains. Oil exports fell 8% year-on-year during the first five months to May.
The main objectives of the Central Bank of Oman (CBO) are to preserve a strong currency and low inflation. Consumer prices have averaged a paltry 0.5% per annum between 1997 and 2001. The Omani rial. (pegged to the US dollar since 1986) remains exceptionally stable, reflecting solid macroeconomic fundamentals and recently higher international liquidity. Currency stability, in turn, contains imported inflation. In the near future, no changes to CBO's monetary policy (closely tied to America's) are anticipated. Therefore, businesses and consumers should benefit from lower borrowing costs. The Federal Reserve (US Central Band is now unlikely to hike interest rates because of faltering economic recovery and downside risks in stock markets (which could spark-off "double-dip" US recession). On the fiscal side, the government will most likely `undershoot' its 2002 budget deficit forecast of OR379.5m (based on a cautious oil price of $18 a barrel) and register a surplus, albeit on a moderate scale compared with the previous two years. The London-based Economist Intelligence Unit estimated fiscal surpluses in 2000 and 2001 at OR685m and OR439m, respectively. This year's actual revenues will be considerably higher since Brent blend oil (a global benchmark) should average $24-$25 a barrel, similar to last year's level. However, the authorities are committed to fiscal prudence. Hence, above budgetary oil receipts are deposited in the State General Reserve Fund (SGRF), whose main purpose is preserving the nation's resources for future generations.
The International Monetary Fund (IMF) commended the authorities for "implementing sound economic policies and a balanced, export-oriented development strategy, which has started to show favourable trends in exports and government revenues, leading to additional accumulated resources into the SGRF. …