Oman: Economy on the rise

Oman’s economy looks set for a period of solid expansion, with the state’s pump-priming efforts of the past year having a positive impact on growth. Much of the same is expected in 2012 as the government increasing its spending to create jobs and improve key infrastructure.

In late November, Oman’s minister of financial affairs and deputy chairman of the financial affairs and energy resources council, Darwish bin Ismail Al Balushi, briefed the members of the Shura Council on the draft budget for the coming financial year. As detailed by the minister, total spending for 2012 has been set at OR10bn ($26bn), with expected revenues forecast to be OR8.8bn ($22.85bn).

The economy should grow by 5.5% this year, with GDP projected to expand by 5% in 2012, the minister said. The increase planned for next year, on top of the above budget spending to date in 2011, will help further stimulate the economy and should push growth to the levels forecast by Al Balushi.

In its 2012 spending programme, the government will be increasing expenditure by around 10% over the current year’s total, with much of the additional outlays being directed towards projects aimed at boosting the economy and creating employment opportunities for Omanis.

“The higher spending will boost employment and create about 30,000 jobs for students expected to graduate in 2012, and 50,000 more jobs will be made available to those who are already on the waiting list,” Al Balushi said in his address to the council.

Most of the positions to be created under the 2012 budget will be in the public sector, though the government hopes that the private sector will increase its hirings as the economy expands.

The government has moved to encourage Omanis to take up jobs in the private sector, amending the regulations governing employment conditions to shorten the working week to five days, or 45 hours, in line with practices in the public sector, and also raising the minimum monthly wage to $472.

These changes should help put the private sector on an equal footing with the public sector and make employment in the non-state segment of the economy more attractive, said Margaret Purcell, the chief economist with BankMuscat.

“Everybody is on a five-day week and the hours are clearly specified, so people do not feel they will be working longer if they are in the private sector,” she said in an interview with the Muscat Daily on November 29.

The issue of private sector employers favouring cheaper expatriate labour is likely to remain a challenge. Data issued by the government in late November shows that in the nine months to the end of September, the number of foreign workers in Oman actually grew to 1.06m, up from the 955,000 in December.

Though the finance ministry has pencilled in a fiscal deficit of just over $3.1bn in the draft budget, a total of roughly 5.4% of GDP, it is quite likely this figure will be drowned out by the flow of black ink into the state ledgers. The prospects for Oman’s finances are actually more promising than they first look, given that projections for oil revenue were based on a price of $75 per barrel, short of the $110 mark that crude is trading at as of the beginning of December.

Output from Oman’s oil fields is also forecast to increase in the coming year, with production set to rise by 2% to 915,000 barrels per day, further topping up state coffers. With oil revenue representing some 72% of state income, prolonged higher crude prices and increased output will help fund the extended investment programme outlined in the budget.

The government will be further comforted by the steady fall in inflation, with the rate of increase in the cost of living easing to 3.7% year-on-year as of the end of September, according to figures released by the government on November 20. The September figure was the lowest in seven months and was well down on the 5.3% posted in August.

Inflationary pressures should remain subdued well into the new year, said Fabio Scacciavillani, a chief economist at the Oman Investment Fund. “Domestic price pressure has been largely subdued, and commodity prices in the global markets have been declining or have stabilised,” he told the Muscat Daily on November 21. “We should see a further slowdown in inflation in the coming months.”

There is always a chance Oman’s economy could dip slightly were oil prices to take an unlikely plunge, but the Sultanate does seem to be well placed for the coming year. With little direct exposure to European debt, and ample reserves to fund any shortfalls should gaps need to be plugged in the budget, Oman is expected to be able to meet most of its targets for 2012.