Global Arab Network | Oman: Boosting economic activities, GDP grows by 23.4 %

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

Oman: Boosting economic activities, GDP grows by 23.4 %

Global Arab Network - - Maha Karim

Wednesday, 22 June 2011 15:34

Global Arab Network - The outlook for the Omani economy remains positive for 2011, notwithstanding recent upheavals in the region, the Central Bank of Oman (CBO) stated in its 2010 Annual Report released. The banking regulator based its upbeat assessment for the year on a number of key factors: the strengthening of the global recovery, higher average price earnings of Omani crude oil exports, and a substantial public investment programme outlined by the government in the 8th Five-Year Plan.
“With the consolidation of the global recovery, Omani crude oil is expected to fetch a higher average price in 2011. This would improve the overall fiscal position as well as strengthen country’s external balance of payments position. The government has embarked upon the Eighth Five-Year Development Plan (2011-15) involving large public investment programme, particularly in the infrastructure sector. This would sustain domestic demand and strengthen the diversification programme.
"The medium term fundamentals of the economy remain strong with resilient banking system, stable exchange rate, sufficient foreign exchange reserves, adequate physical infrastructure and above all, attractive foreign investment policy pursued by the government,” the apex bank stated.
At the same time, the Central Bank underlined its commitment to keeping inflation under control. Although inflation expectations largely remained anchored in Oman, upside risks to inflation have increased significantly mainly due to rise in prices of food and other essential commodities in the international markets supported by domestic demand, the regular warned.
“A sharp rise in prices of essential commodities in the international markets is a matter of concern for the CBO as Oman is an importer of most of the essential commodities. Hence, the major policy challenge, going ahead, would be to control inflationary pressures in the economy.
"The CBO is, therefore, closely monitoring the price situation in both domestic and international markets so as to take timely actions depending on the situation without jeopardising the growth momentum in the economy,” it stated.
The Annual Report presents an assessment of Oman’s macroeconomic developments and the economic policy environment during 2010 and analyses different critical sectors of the economy.
According to the CBO, the Omani economy witnessed a significant turnaround in GDP growth in 2010, primarily driven by a recovery in crude oil prices in the international markets.
The Gross Domestic Product (GDP) at current prices grew by 23.4 per cent in 2010 in contrast to a decline of 22.6 per cent in the previous year.
While nominal GDP emanating from the hydrocarbon sector registered a robust growth of 41.2 per cent, the same from non-hydrocarbon activities witnessed a growth of 11.1 per cent during 2010. As a result, the share of petroleum activities in the overall GDP increased from 40.6 per cent in 2009 to 46.5 per cent in 2010 while that of non-petroleum activities declined from 61.6 per cent to 55.5 per cent during the same period, the CBO said.
Importantly, employment generation — a priority objective of the Omani government — improved in line with the recovery of the economy, the report said. In 2009, the employment opportunities created for Omanis in the public sector increased by 4.1 per cent over the previous year, while the same for expatriates rose by 2.7 per cent.
Of the total employment in the public sector, the share of employment of Omanis improved to 85.6 per cent in 2009 compared to an average of 84.6 per cent during the previous three years, indicating steady progress of Omanisation in the country.
Private sector employment during 2010 increased by 9.8 per cent compared to 9.6 per cent in the previous year.
The growth of employment of Omanis in the private sector was relatively higher at 12.3 per cent in 2010 compared to 9.3 per cent rise in employment for the expatriates.
Significantly, inflationary pressures in Oman remained, by and large, under control in 2010, the CBO stated. Annual inflation rate measured by movement in the average Consumer Price Index (CPI) for the Sultanate stood at 3.3 per cent in 2010 compared to 3.4 per cent in the previous year.
On a point-to-point basis, the CPI inflation in the Sultanate accelerated to 4.2 per cent by the end of 2010 compared to 0.9 per cent a year ago. Average inflation in Oman in terms of other price indices was slightly higher with Muscat CPI and WPI rising by 4.7 per cent and 4.9 per cent, respectively in 2010.
“The recent rise in commodity prices in Oman was attributed to sustained domestic demand as well as rapid rise in prices of essential commodities in the international markets. Since the global recovery is being consolidated and commodity prices in the international markets are either close to the pre-crisis level or even higher in certain cases, there is a potential threat to inflationary pressures in Oman, particularly in the second half of 2011,” the apex bank noted.
The oil and gas sector continued to play a dominant role in the economic affairs of Oman in 2010, it said. The turnaround in the crude oil production witnessed since 2008, continued to increase by 6.4 per cent to 315.6 million barrels in 2010 compared to a rise of 6.8 per cent and 7.1 per cent in 2008 and 2009, respectively.
The aggregate production of natural gas increased by 7.2 per cent to 1176.8 billion cubic feet in 2010 compared to 1097.7 billion cubic feet in 2009. In volume terms, crude oil exports rose by 12.1 per cent to 268.7 million barrels in 2010 compared to 10.6 per cent rise in the previous year, primarily driven by rising global demand, mostly from the emerging economies.
Omani crude oil fetched an average price of $76.6 per barrel in 2010, which was 35.1 per cent higher than $56.7 per barrel in 2009.
The Annual Report also pointed to a significant improvement in the Sultanate’s overall fiscal balance in 2010 mainly due to buoyancy in revenues arising out of rise in crude oil prices in the international markets.
Total revenues increased by 17.3 per cent to RO 7,916.5 million in 2010 from RO 6,748.4 million in 2009. Net oil revenues increased by 21.8 per cent to RO 5,470.1 million and its share in total revenues rose from 66.5 per cent in 2009 to 69.1 per cent in 2010. Total expenditure increased by 7.2 per cent to RO 7,965.3 million in 2010 from RO 7,428.7 million in 2009.
The overall fiscal deficit, after transfer of surplus revenues to several sovereign funds, stood much lower at RO 48.8 million in 2010 compared to RO 680.3 million in the previous year.
The Sultanate’s annual budget for 2011, presented in the beginning of the year in the backdrop of a fragile global recovery and rising international commodity prices, assumed a higher average Omani crude oil price of $58 per barrel and a higher daily average crude oil production of 896 thousand barrels.
Based on the conservative assumption of Omani crude oil prices, the overall fiscal deficit was originally budgeted at RO 850 million in 2011, which is expected to be financed primarily by drawing from reserves. In April 2011, the government introduced a supplementary expenditure of RO 1,000 million over the 2011 approved budget, primarily for pay increases, benefits and additional wages for newly hired public servants.
As a result, the overall fiscal deficit may be higher at RO 1,850 million in 2011, the CBO said.
Reflecting the recovery of the economy, broad money (M2) increased by 11.3 per cent in 2010 compared to a rise of 4.7 per cent in the previous year. Aggregate deposits with the commercial banks, which grew by 14.7 per cent in 2010, were sufficient to support the 9 per cent rise in total credit.
Liquidity conditions remained comfortable throughout the year as evident from large rollover of the CBO certificates of deposit in the weekly auctions. Reflecting easy liquidity conditions, both deposit and lending rates in Oman softened during the year. The inter-bank call money rate was marginally higher than the CBO CD rate during the year and remained within the informal corridor set by the CBO CD rate and the Repo rate.
“Oman’s banking system continued to perform well during 2010 consistent with recovery of the real economy. The BIS capital adequacy ratio of commercial banks averaged 15.8 per cent at the end of 2010 which exceeded the mandated 12 per cent. Commercial banks earned a higher profit of RO 247.7 million in 2010 compared to RO 190.8 million in 2009. Net of reserve interest, gross non-performing loans (NPLs) of banks as a ratio of total credit stood lower at 2.9 per cent at the end of 2010 compared to 3.4 per cent a year ago,” the CBO stated.
In another positive development witnessed in 2010, the Sultanate’s balance of payments position improved significantly mainly due to rise in crude oil prices in the international markets. Total merchandise exports increased by 32.4 per cent to RO 14.1 billion in 2010 in contrast to a decline of 26.7 per cent to RO 10.6 billion in the previous year. As increase in imports was relatively modest at 11.4 per cent in 2010, the merchandise trade balance improved to a surplus of RO 7.2 billion during the year compared to RO 4.5 billion in 2009.
After accounting for a combined outflow of RO 5.2 billion on account of services, income and transfers, the current account registered a surplus of RO 1,960 million in 2010 as against a deficit of RO 230 million in the previous year. Net inflows on account of foreign direct investment and portfolio investment were RO 747 million and RO 366 million, respectively in 2010, which were significantly higher than those in the previous year.
On a balance of payments basis, there was an increase in foreign exchange assets to the tune of RO 574 million in 2010, comprising RO 339 million in the CBO’s account and RO 235 million in the Government’s account. At the end of 2010, CBO’s gross foreign assets (including valuation) stood at RO 5,008.5 million, which was sufficient for more than 8 months of merchandise imports.
Giving its assessment of banking and fiscal trends in 2011, the apex bank stated: “Since the last quarter of 2008, the CBO has been pursuing an accommodative monetary policy. Both money supply and credit growth accelerated in 2010 consistent with turnaround in the GDP growth. The commercial bank credit is likely to accelerate in 2011 consistent with the recovery. (Omanobserver)

Global Arab Network

< Prev		Next >

Last Updated on Wednesday, 22 June 2011 17:03

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network