Oman's economy is expected to reap the rewards of high oil prices and prudent fiscal measures. However, inflation remains a key area of concern and the government is determined to keep it in check

The sultanate's economy will continue to maintain its solid growth trajectory in 2008 on account of strong oil prices and an expected increase in oil production, according to H E Ahmed bin Abdulnabi Macki, Minister of National Economy and Super-visor of Ministry of Finance, Deputy Chairman for Financial Affairs and Energy Resources Council.

The government expects its revenues for 2008 to touch RO5,400mn compared to RO4,490mn in 2007, while it is estimating a total expenditure of RO5,800mn compared to RO4,890mn in fiscal 2007. Says Macki, “All the economic sectors will continue to grow on account of the high oil prices and implementation of some planned projects.”
According to the Economist Intelligence Unit (EIU), the outlook for the sultanate's economy looks bright in the short-to-medium term as a result of the buoyant international oil prices. Besides, several large-scale projects are under way which, once fully operational, could change the face of the economy. Although the government has not provided a growth forecast for 2008, the EIU estimates that Oman's real GDP growth will average around 5.2 per cent in 2008-09.

The growth pales in comparison to the preliminary GDP growth rate of 11.6 per cent for 2007. Fighting rising inflation and keeping it in check is one of the key priorities of the government this year, as the inflation rate touched a 16-year high of 6.47 per cent in August last year, along with a massive increase in housing rents.

According to Macki, the rise in inflation was linked to external and internal factors, with the extended weakness of the US dollar not helping matters. “The prices of commodities have increased from key exporting nations. Extended drought conditions in Australia, a ban on basmati rice exports from India, besides an increase in fuel prices have led to higher freight and insurance rates and consequently increased prices for the consumer.”

Decline in deficit

One of the positive indicators of the budget is the decline in deficit as a percentage of revenue and domestic product. The budget reflects the government's commitment towards building a modern economy with competitive capabilities that can match the fast-changing international landscape. It has also taken into consideration the current and future requirements of the country.

Budget Implications

Common man

With the dollar showing no signs of perking up, and Oman steadfastly ruling out a delink of the rial from the dollar, imported inflation will strongly reflect on his monthly grocery bills. With commodity prices increasing worldwide, rising prices are bound to keep him worried for the time being.

Investors

The Muscat Securities Market (MSM) was the best performing market in the GCC. MSM's market capitalisation stood at RO9bn for the first 11 months, and the bullish scenario and positive earnings prospects for all the sectors surely augur well. With more companies slated to list on the market, it's definitely sunny days ahead for wise investors.

Oil and Gas Sector

The projections for oil and gas production have been increased for 2008, with projected output put at 790,000 barrels per day (bpd) compared to 730,000bpd in 2007. The government has been conservative in the price realisation from oil at US$45 per barrel, compared to the average price of nearly US$65 in 2007. With oil prices staying constantly in the high nineties, the government coffers are likely to swell further.

Infrastructure Projects

The government is working on reining in inflation. And one of the ways the government will go about it is by slowing down some of the less important stead of once a week. It's a mixed bag for the infrastructure sector.

The government's emphasis on health remains as strong as ever. The allocation of the health sector has been increased by 15 per cent to RO228mn. The Ministry of Health is constructing a new hospital in Masirah, polyclinics in Seeb, Sohar, Nizwa and Buraimi, health centres in Samail, Bid Bid, Wadi Bani Khalid, Mudhaibi and Sur and an integrated heart unit in Sultan Qaboos Hospital in Salalah.

Education Sector

The allocation for the education sector accounts for 37 per cent or RO710mn of the total expenditure. The government is constructing several new schools, vocational guidance centres, scholarships and repairs of schools damaged last June. A sum of RO14mn has also been kept aside for implementing the academic plan for secondary education (grades 11 and 12). These measures are meant to ensure a bright future for the new generation.