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September, 2010 |
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Market Update |
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2009
December |
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The best in Oman across 15 categories |
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2008
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A more comprehensive outlook on offer this year with six new categories added |
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Also From the Apex Stable |
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Growth assured |
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Business Today, Feb 2010 |
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The budget proposal for 2010 presses ahead with development programmes and employment creation, giving an impetus to economic development.
Presenting the budget, H E Ahmed bin Abdulnabi Macki, Minister of National Economy and Deputy Chairman of the Financial Affairs and Energy Resources Council, said the estimated government expenditure is 12 per cent higher at RO7.18bn over the previous year’s RO6.42bn.
Of the total expenditure, RO4.43bn is current expenditure and RO2.13bn investment expenditure. The current expenditure allocation has been increased by 10.2 per cent year on year (YoY) as compared to the 2009 budgeted figures and constitutes about 62 per cent of the total expenses. RO620mn has been allocated as subsidies to the private sector, an increase of 27.8 per cent over the budgeted levels in 2009.
The state revenue for 2010 is estimated at RO6.38bn on an assumed oil price of US$50 per barrel as compared to US$45 per barrel estimated in the 2009 budget.
This is also RO766mn or 14 per cent higher than the previous year’s RO5.61bn revenue estimate. Oil and gas revenue, estimated at RO4.85bn, will constitute 76 per cent of the total revenue.
The minister said the estimated deficit of RO800mn, representing 13 per cent of revenue and three per cent of gross domestic product (GDP), compares with RO810mn for 2009 and is well within internationally acceptable limits. The deficit will be met from the state general reserves, if the revenue estimate is not realised.
H E Macki said the sultanate’s real gross domestic product (GDP at fixed price) for 2010 is expected to grow by 6.1 per cent and nominal GDP (at market price) by 18.4 per cent. Further, he said, the annual inflation growth will also be in the region of 3.5 per cent.
The economic growth is in view of the anticipated rise in oil prices in international markets and continuation of local financial and monetary policies.
The minister said that the corresponding real GDP growth for last year was 3.7 per cent. The inflation rate had fallen drastically from a high of 12.4 per cent in 2008 to around 3.6 per cent last year.
The marked fall in inflation, he said, can be attributed to the following: a drop in commodity prices in the international markets in the aftermath of the global economic meltdown leading to falling demand, effective monetary policies adopted by Oman to contain excess liquidity in the financial system and measures taken to protect consumers.
Referring to a slump in oil prices early last year, H E Macki said that the average price of Oman Crude fell by 44 per cent to US$56.7 per barrel in 2009 from US$101.1 per barrel in the previous year. “The ability of the national economy to counter the external shock stems from a number of factors, mainly the increase in oil production, the economic policies aimed at diversification and encouragement to invest.”
The daily oil production rose by seven per cent to 810,000 barrels a day in 2009 over the previous year, which led to the mitigation of impact of fall in oil prices. Defence and security current expenses are estimated to be at RO1.615bn. According to a report by Gulf Baader Capital Markets (GBCM), this shows an increase of 4.5 per cent YoY forming around 22.5 per cent of the total expenditure.
Overall oil and gas production current expenditure is expected to increase by 4.1 per cent YoY to RO292mn as compared to RO272mn in the last fiscal year.
Education has been the centre of the social reforms and the government has appropriated RO874mn for the education sector representing 35 per cent of the total current expenditure of the civil ministries, an increase of RO83mn or ten per cent over the approved budget for the year 2009.
The healthcare sector gets a reasonable allocation in the current budget with total allocation to the sector amounting to RO294mn, which represents 12 per cent of the total current expenditures of the civil ministries. That is an increase of RO23mn or eight per cent over the approved budget for the year 2009. RO247mn has been allocated during the period for new projects in the health sector.
The allocation towards civil ministries expenditure has been increased to 15.4 per cent of the total current expenditures, forming around 35 per cent of total general expenditure.
The higher allocation was done mainly towards supporting the basic government services, operational expenses of ministries and expansion of health and educational services and expenses of new projects.
The government has budgeted 10.9 per cent increase in investment expenditure for 2010 to RO2.13bn over previous year’s budgeted amount of RO1.919bn. RO30mn has been allotted to cover the operational expenses of the new projects intended to be operated for ministries in 2010.
The minister said that an additional allocation of RO882mn has been made in the Seventh Five-Year Plan for building new airports and expanding Muscat and Salalah airports.
This includes RO450mn approved in the previous year for the first phase, related to civil works at Muscat International Airport, which include runway, roads, pathways, yard and facilities for other supporting services. Also, RO212mn has been allocated for four new airports and RO63mn for work related to leveling and construction of drainage channels at Muscat.
Additional approbations to the extent of RO1.78bn have been allocated to the road sector. This is an increase of RO724mn as compared to 2009, says the GBCM report.
“The thrust on infrastructure development is the key area for the economic development, which we believe is clearly seen on the back of increased allocations in the budget.” The port sector has received additional appropriations to an extent of RO1.03bn for construction, development and expansion of the Duqm Port. An additional amount of RO788mn has been allotted towards expanding the port infrastructure, marine works, construction of the dry dock and other related facilities at Duqm.
H E Macki said that preliminary estimates indicate that oil exports fell by 41 per cent in 2009, mainly due to the fall in oil prices. On the contrary, non-oil revenue soared by 16 per cent and re-exports were up by 14 per cent, indicating that the sultanate is emerging as a centre for re-exports.
The minister noted that there has been a marked growth in the contribution of the tourism sector to GDP. ‘We found that the contribution of tourism sector in GDP has touched 2.4 per cent in 2008. This is likely to increase further in 2009. We were targeting three per cent in 2020. Once we complete the tourism projects, we will witness tremendous progress.” H E Macki said that the country’s imports fell by 23 per cent in 2009 from the previous year.
Hence, the trade surplus fell by 32 per cent to RO4.4bn in 2009, over the previous year. Also, the current account balance surplus fell to RO212mn in 2009 from RO2.1bn in 2008.
In view of this, the ratio of the current account balance surplus as per cent of GDP at current prices fell to 1.1 per cent in 2009, from 9.1 per cent in the previous year.
Most analysts say despite relatively lower levels of oil production, ongoing investments in infrastructure related projects are sustainable and would spur the economy over the long term. This is supported by the government’s willingness to move ahead with its spending plan.
 Minister speak
VAT
“The sultanate is planning to introduce VAT along with its GCC counterparts, because we cannot introduce the tariff alone. We are studying the proposal with them [GCC states] and we believe that VAT will not affect the consumers, since we are trying to compensate it by taking away customs duty.”
GCC single currency
“We have not changed our mind and not revised our position. We are not joining [the currency union] and that is it.”
Disinvestment in state-owned firms
“If the [capital] market turns favourable [this year], we will proceed. If not, like in the previous two years, we have to wait.”
Airports
“The work has already started for four regional airports – Ras al Hadd, Duqm, Adam and Sohar. The initial work will involve building runways and all the contractors have started work.”
Railway network
“We are evaluating the routes for the proposed railway network from Barka to Sohar and to Khatmat Malaha (on the UAE border) and then to the UAE. We are also studying the speed ... whether it should ply at 350km per hour (km/h) or 200km/h. Whether it should transport just freight or both passengers and freight.
These are the issues being discussed by the government with other GCC states…Oman and other GCC states are also considering two fuel options – diesel and electric power – for running the trains. As far as we are concerned, we prefer electricity to diesel. Also, it seems that everybody is planning for a speed of 200km/h.”
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