GCC Focus: Oman sends the right signals

Omani authorities are sending the right signals to the business community by enhancing spending in fiscal year 2009. Stronger public sector spending encourages similar moves by private sector investors.

The end result of such moves would include overcoming adverse effects of the global financial crisis, opening up fresh employment opportunities for locals and registering a solid growth in gross domestic product (GDP).

Quoting economists, a Reuters report last week pointed to the possibility of registering a 20 per cent rise in spending in 2009.

Stronger spending would most likely relate to infrastructure projects, including airports, ports, electricity and road networks.

In retrospect, projected figures for 2009 put Oman's spending at $16.7 billion (Dh61.28 billion) on revenues of $14.6 billion, thereby leaving a shortfall of $2.1 billion.

Changing statistics partly reflect conservative income and spending projections. The authorities calculated revenues based on an average oil price of $45 per barrel. The petroleum sector contributes more than three quarters of treasury income.

To be sure, officials prepared the 2009 budget during relatively low oil prices in late 2008. This reflected dampening economic perspectives in the aftermath of the global financial crisis.

Oil prices tumbled from $147 per oil in July 2008 to about $35 per barrel by year-end 2008. However, oil prices continued an upward trend in 2009 due to improved global economic conditions. Oil prices hovered around $78 per barrel last week.

Oil prices

Firmer oil prices could not come at a better time for Oman thanks to its rising oil output. Officials expect oil output to average 810,000 barrels per day in 2009 versus 760,000 barrels per day in 2008.

The credit for this noted trend is reserved for progress at the Mukhaizna oil field in south-central Oman. Occidental of the US leads a consortium of international oil companies to expand Mukhaizna's production capacity from 10,000 barrels per day to 150,000 barrels per day in a span of five years.

The consortium won the concession in 2005. Latest available statistics put the field's output at 55,000 barrels, clearly standing behind rising production levels.

Still, stronger spending should help serve the goal of diversifying the economy away from the petroleum sector. The hydrocarbons sector contributed 79 per cent of treasury income and about the same with regard to total exports in 2008.

The gas industry accounted for 10 per cent of total revenues generated by the petroleum sector. In addition, the petroleum sector contributed more than 40 per cent of the country's GDP.

Also, firmer spending is welcome amidst declining inflationary threats. Like other Gulf Cooperation Countries (GCC) countries, Oman's economy suffered from inflationary threats in 2007 and part of 2008 during the height of exceptionally strong oil prices. Inflation rates stood at more than 10 per cent in 2008, dropping to nearly three per cent in the first half of 2009.

Planning

Improved planning of revenues and expenditures should provide the means to address outstanding problems facing the sultanate, notably unemployment. The jobless rate amongst eligible Omani nationals stands at 15 per cent.

Many Omani nationals will be entering the job markets in the next few years looking for suitable employment with regard to choice of employers and remunerations. Nationals like to work for public sector establishments and relatively large private sector firms.

Final results of 2009 will most likely be along the lines of 2008. In reality, in 2008, revenues and expenditures grew by 49 per cent and 12 per cent to $20.7 billion and $16.6 billion.

Accordingly, instead of registering a projected deficit of $1 billion, the year ended with a $4.1 billion surplus.

Omani authorities have the opportunity to use the extra oil proceeds to address challenges facing the sultanate, notably economic diversification and job creation.

The writer is a Member of Parliament in Bahrain.