Thanks to relatively firm oil prices, Oman's budget for the fiscal year 2010 is now expected to post surplus rather than deficit. Amongst others, the extra revenues provide the authorities opportunities to address the unemployment debacle through stronger spending on development projects. Also, higher income could not be more timely as Oman needs to enhance spending in order to deal with problems associated with cyclone Phet.

The country's officials prepared the 2010 budget assuming an oil price of $50 per barrel. Yet, this is a rather conservative figure considering the average oil price of $70 per barrel for Omani oil in the first four months of the year.

Still, authorities are now talking about average oil prices ranging from $60 to $80 per barrel for the fiscal year 2010.

Like other Gulf Cooperation Council (GCC) countries, the petroleum sector plays a key role in the economy. Originally, oil was projected to make up 64 per cent of total revenues, in turn supported by an additional 13 per cent from gas. Yet, stronger oil prices would only strengthen the significance of the petroleum sector, thereby putting the economy at the mercy of development in the oil market.

Rising oil prices have come at the time of increase in oil output from 760,000 barrels per day in 2008 to 810,000 barrels per day in 2009 and as high as 900,000 barrels per day in 2010.

Stronger oil output is particularly emerging from Mukhaizna oil field, in turn a concession for Occidental of the US and its partners in 2005. At the time of winning the concession, the consortium led by Occidental indicated interest in investing some $2 billion (Dh7.35 billion), as part of efforts to increase Mukhaizna's production to 150,000 bpd in a span of five years.

Revenue outlook

In retrospect, Omani officials projected revenues of $16.6 billion and expenditures of $18.7 billion, leaving a deficit of $2.1 billion. To be sure, this level of shortage was sustainable by virtue of comprising merely 3 per cent of the country's gross domestic product (GDP). Yet, recently published statistics point out to surplus of $1.85 billion in the first four months of the year, clearly suggesting a reversal of projected deficit for fiscal year 2010.

The state is a big player in Oman's economy with its spending making up around a quarter of the sultanate's GDP. Thus, a stronger income serves the purpose of achieving steady economic growth rates, in turn deemed essential for aiding efforts to overcome consequences of the global financial crisis.

Amongst others, stronger government spending is essential for addressing the employment problems. By one account, the jobless rate stands at about 15 per cent among eligible Omani nationals, with actual figures being higher in rural areas and amongst females. Still, demographic statistics point out to another challenge, with 43 per cent of the population being below 15 years of age. Undoubtedly, many would be entering the job markets in the next few years looking for suitable opportunities with regard to compensation and working conditions.

Whether it's right or wrong, the desire to keep an independent fiscal policy partly explains Oman's determination not to join the GCC's monetary union initiative, which commenced at the start of 2010.

Omani authorities want to have freedom in assuming policy choices to address economic challenges facing the sultanate.

Nevertheless, good planning requires adopting realistic figures while preparing budgets. Undoubtedly, it makes more sense to spend funds based on planning rather than on an ad hoc basis. Certainly, it is anything but a prudent fiscal policy to develop ultra conservative figures, as there are opportunity costs that cannot be overlooked.

 

The writer is a Member of Parliament in Bahrain.