Oman retains steady hand on economic course

The Omani economy is recording surpluses and attractive growth rates across the board. The development partly reflects the relatively strong oil prices in tandem with steady crude production, with all their positive implications on public spending and, by extension, the economic performance.

Oman’s GDP weighs in at around $77 billion (Dh282.7 Billion), notably higher than the earlier recorded $71 billion. It ranks in the GCC rankings and ahead of Bahrain. For its part, the GDP of Bahrain, which stands at $27 billion, is the lowest within the six-nation grouping.

The International Monetary Fund estimates real (adjusted for inflation) GDP increasing by five per cent in 2012, up from 4.5 per cent in 2011, thanks in part to gains made by the non-oil sectors. Sectors such as manufacturing and tourism could grow by 5.5 per cent on the back of a steady rise in governmental spending.

Undoubtedly, stronger GDP expansion partly reflects the absence of inflationary pressures, projected at around three per cent in 2013. In fact, inflation rates slowed down to 2.9 per cent in 2011 versus four per cent in 2011. Clearly, inflation is not hiking to dangerous levels despite the sustained rise in fiscal spending, notably with regards to current spending on items such as wages.

Current expenditure grew by more than a third in 2012 partly due to civil wage increases by 19 per cent. Certainly, this is on top of the earlier increases carried out in 2011 designed to stem popular discontent with some socio-economic realities, including the issue of wages of nationals.

In 2011 alone, the government spent a substantial $2.6 billion on numerous projects and initiatives including creating thousands of job opportunities in state entities. The jobless rate stands at between 12 to 15 per cent among locals, and hence cannot be overlooked.

Interestingly enough, the fiscal balance remained at a surplus of 4.5 per cent of GDP, albeit lower than the 11.9 per cent in 2011. In fact, recording such a welcoming statistical surplus reflects not a pleasing development, namely that of not maintaining the projected capital spend.

Mirroring its stances on political matters, the sultanate is noted for adopting conservative economic policies as conscious strategic choices. The budget for 2012 was prepared with an assumed average oil price of $75 per barrel. However, it is believed that the Omani oil averaged some $112 per barrel during the year.

Still, the authorities assumed rate for fiscal year 2013 stands at $85 per barrel, again below prevailing market rates in international oil markets. Certainly, differences between assumed and actual oil prices allow for stronger treasury income and therefore the opportunity for additional spending.

What’s more, Oman benefits from a steady rise in oil output besides stronger than projected oil prices. Oil output reportedly stood at 920,000 bpd in 2012 up from 878,000 bpd in 2011. The projected figure for 2013 stands at 930,000 bpd and possibly higher.

Such statistics explain the logic behind Oman enjoying investment-grade marks by key rating agencies. S&P grants Oman ratings of A and A-1 for long-term and short-term obligations. For its part, Moody’s extends a rating of A1 to the sultanate.

And both agencies grant a stable outlook for the Omani economy. S&P upgraded the outlook for Oman from negative to positive only in the summer of 2012 as a reward for making progress in economic measures, which remain intact.