Published: 02/02/2009 2:49 am
Senior economist at Standard Chartered Bank, Philippe Dauba-Pantanacce, talks about government expenditure, the deficit, economic growth and inflation.
Do you think that the Omani government will slow down expenditure if the average oil price goes below US$45 per barrel?
If oil goes below US$45 per barrel, the Omani government will reset the priorities of projects, which is in line with other GCC states. As first priority will be given to infrastructure projects, such projects will not suffer. The strategy of the Gulf states, including Oman, is to diversify the economy, which is absolutely crucial.
What do you think will be the trend in oil prices during the current year?
All the GCC states depend mainly on oil revenues for funding development projects. In the case of Oman, it is around 78 per cent of total revenue. Interestingly enough, the sultanate is not as dependent on oil as the other GCC states. Gulf countries like Kuwait and Saudi Arabia depend almost 90 per cent on oil revenue. Our forecast of the average oil price for 2009 is around US$58 per barrel.
It should start lower in the first quarter, move up to US$53 per barrel in the second quarter and firm up further to US$70 in the last quarter. This gives an average of US$58 per barrel for the entire year. In view of this, Oman should be able to meet its revenue target. It is the same story for all the Gulf states.
However, a major difference between the GCC countries is that they have different levels of oil depletion and Oman and Bahrain are more vulnerable compared to other countries. The sooner these countries diversify, the better for them.
Do you think that the budget deficit at RO810mn this year is reasonable?
All the GCC states, including Oman, have accumulated large surpluses in recent years. However, Oman does not have huge surpluses like the UAE or Saudi Arabia. Its budget is also small in size. And the projected budget deficit of five per cent of GDP is reasonable. The government has enough surpluses from revenue in recent years to meet the deficit.
What do you expect the real economic growth to be in the sultanate in 2009?
Definitely all the GCC states will suffer from the financial turmoil. It is naive to think that the Gulf region will be insulated from the global turmoil because no country in the world nowadays is a closed economy.
So, it will hamper the real economic growth of the Gulf states. Our forecast of real GDP growth for Oman in 2009 is two per cent, which is almost half of the forecast for 2008.
What do you expect the inflation rate in Oman to be during the current year as commodity prices are plummeting across the world?
Our inflation forecast for Oman this year is around four per cent, compared to an average of ten per cent last year. This is a positive sign for the economy, as high inflation was a major impediment to economic growth in the Gulf region.
What kind of performance do you expect from the corporate sector this year?
In fact, two inter-related factors - real factors and sentiments - are affecting the corporate sector. One cannot underestimate the damage that sentiment can cause in this type of business cycle. Since banks are reluctant to lend to each other, the inter-bank rate is firming up.
The reluctance on the part of banks to provide credit to the corporate sector compounded the problem, and resulted in credit becoming expensive. The corporate sector that depends on financing will suffer, resulting in dim growth prospects. It is the case in the US, Dubai and even Oman.