Select Country:

SULTANATE OF OMAN

Economic Overview

Sultanate of Oman is a middle-income economy with notable oil and gas resources and substantial trade and budget surpluses. Petroleum accounts for 64% of total export earnings, 45% of government revenues and 50% of GDP. Hydrocarbon sector represents one of the most important sectors of the Omani economy. Oman possesses 5.50 billion barrels of proven crude oil reserves which account for 1.2% of the total GCC reserves – almost 0.4% of the world total reserves. With current oil production at 0.806 million barrels a day, oil reserves are expected to last for 19 years. A period between 2003 to late 2008 was the best period for the economy in terms of economic performance on the back of sustained high oil prices, which have helped build Oman’s twin surpluses (budget and trade surpluses), and foreign reserves. It has a strong and diversified private sector, which covers industry, agriculture, textile, retail and tourism. Its major industries are copper, mining and smelting, oil refining and cement plants. It further seeks private foreign investors, especially in the industrial, IT, tourism and higher education fields. Industrial development plans focus on gas resources, metal manufacturing, petrochemicals, and international transshipment ports. Oman was confronted with two challenges: high liquidity and inflation until late 2008. The slump in the world oil market and the emergence of the global financial and economic crisis reduced Oman’s budget surplus significantly in 2009, and slowed the pace of investment and development projects. By using enhanced oil recovery techniques, Oman succeeded in increasing oil production in 2009, giving the country more time to diversify. Oman is actively pursuing a development plan that focuses on diversification, industrialization and privatization, with the objective of reducing oil sector’s contribution to GDP to (9%) in 2020. The global economic recovery will have a positive impact on the economy.

Macroeconomic Overview

Growth

A surge in oil prices since 2003 has resulted in a strong growth of Oman’s economy, which has grown almost two and a half times in size during 2002 to 2008. Nominal GDP grew strongly at the rate of 44% to US$60 billion in 2008 compared to US$41.6 billion in 2007. Nominal GDP shrank by (-10.9%) to $53.4 billion in 2009 due to the global financial and economic crisis and the slump in the world oil market. However, nominal GDP is likely to expand by 16.6% and 8.9% to US$62.3 billion and $67.8 billion in 2010 and 2011, respectively. In real terms, the economy grew at the rate of 3.4% in 2009 compared to 6.2% in 2008. The economy is expected to pick up and expand at the rate of 4.7% each in 2010 and 2011 on the back of the expected global economic recovery and increased world oil demand.

Inflation

Despite high liquidity, inflation remained low in the range of -1% to 1.9% during 2001 to 2005, but flared up to an annual rate of (12.6%) in 2008 compared to a (5.9%) in 2007 due to high import prices for goods priced in Euro, Japanese Yen and British Pound sterling, and the depreciation of the US Dollar against the world major currencies. Oman’s monetary policy focuses on controlling inflation, which has remained generally modest, partly reflecting the openness of the economy. The government controls the prices of many goods and services through subsidies. Moreover, the government does not resort to monetization of its budget deficits, so there is little inflationary pressure from this source. CPI inflation came down to a manageable rate of 3.5% in 2009 due to wise monetary and fiscal policies of the government. Omani Riyal is pegged to the US Dollar and as the USA is an important source of imports for Oman, it protects prices from some of the pressures of imported inflation from the USA. The yearly rates of consumer price inflation are expected at (3.9%) and (2.9%) in 2010 and 2011, respectively.

Fiscal Position

Oman’s public finances are heavily dependent on oil earnings, which account for around 67% of public revenues. Government fiscal policy has played a major role in pursuing Omanization, diversification and privatization. The government continuously experienced budget deficits during 1992 to 2001. The economy started achieving budget surpluses thereafter, due to higher oil revenues. Oman's economy achieved a budget surplus of 9.6% of GDP in 2008 compared to a 13.7% of GDP in 2007 as the government was able to formulate better fiscal policies largely on the back of strong oil sector. Oman realized no fiscal surplus in 2009 due to the global financial and economic crisis, and the world oil market slump. However, in view of the expected global economic recovery fiscal surplus is expected at 4% of GDP each in 2010 and 2011.

Currency

Since 1973 the Omani Riyal (RO) has been pegged to the US dollar. After a 10.2% devaluation in January 1986, it has remained at the level of RO: US$2.60, which is likely to continue in the medium-term. A relatively low inflation and increasingly tight fiscal policy have helped the government maintain this peg. Total reserves excluding gold stood at US$11.5 billion at the end of 2008 compared to US$9.5 billion at the end of 2007. Foreign reserves stood at US$ 11 billion in 2009, which are expected at $11.1 billion and $11.5 billion by the end of 2010 and 2011, respectively.

External Accounts

Higher oil prices resulted in huge trade and current account surpluses during 2005 to 2008. A surplus on current account stood at US$ 5.47 billion (9.1% of GDP) in 2008 compared to US$2.59 billion (6.2% of GDP) in 2007. The economy realized a marginal surplus of $0.14 billion (0.3% of GDP) in 2009 due to the global crisis and the slump in the world oil market. However, the economy is expected to realize higher surpluses of $1.48 billion (2.4% of GDP) and $2.14 billion (3.2% of GDP) in 2010 and 2011, respectively on the back of likely recovery in the global oil market. Bearing in mind the considerable remittances by foreign workers, profit remittances by the foreign partners of Petroleum Development Oman (PDO), as well as those of private sector foreign companies in Oman, there will be a strong positive impact on current account balances.