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Like many of its GCC neighbors, the Sultanate of Oman is adopting a conservative approach to the significantly higher oil revenues secured during the year 2000 and, despite the availability of more funds, is keeping FY2001 spending patterns broadly in line with the previous year. (Oman’s fiscal year matches the calendar year.) Unveiled by Omani Minister of National Economy Ahmad bin 'Abd al-Nabi Makki on 3 January, the FY2001 budget envisages a 19.3% rise in total revenues but only a 15.2% rise in spending, despite the fact that Oman’s receipts from crude oil exports for the first nine months of 2000 alone are estimated to be up by 87% to OR2.6bn ($6.75bn), compared to OR1.39bn ($3.6bn) for the same period the previous year. Based on an oil price assumption of $18/B and an average annual output of 900,000 bpd, oil revenues for the year 2001 are expected to outstrip the FY2000 projection of OR1,507mn ($3,914mn) by 25% to reach OR1,875mn ($4,870mn).

The FY2001 budget sees a rise in both current expenditure (16.6%) and capital expenditure (7.4%), but produces the lowest projected deficit since 1998 of OR317mn ($823.4mn – see Table below). This will mean that the country’s draw down on its reserves (to finance the shortfall) will be significantly less than in the past two years at OR295mn ($766mn), compared to OR346mn ($899mn) the previous year. The allocation for Defense and National Security has increased by 37.69%, more than all of the other line items and one of the most significant annual increases in recent years. The FY2001 budget also includes a new line item for buying and transporting gas. However, despite an increased outlay, other budgetary allocations have been welcomed by analysts who have described the coming year’s fiscal planning as “sensible and rational” and expect new investment opportunities in 2001. Mr Makki said on 2 January that Oman plans to spend OR1.3bn ($3.4bn) in its new 2001-05 development plan, which will focus on higher education, diversification and enhancing per capita income.

In line with the country’s drive to reduce dependence on oil revenues and promote diversification, the FY2001 budget includes a 39% increase in the allocation to support the private sector of OR72mn ($187mn) – much higher than in previous years and a much greater absolute commitment. Analysts see this as a sign of a steady reform drive and a relatively active privatization process, notably in comparison to some other regional neighbors. Oman Telecommunications Company (Omantel) recently announced that it will delay the start of the divestment process until March, but the process is well under way. As the Oman Arab Bank (OAB) points out in its weekly market report issued on 8 January, the decision is a calculated one. “In view of major telecommunication mergers that occurred recently in Europe, the privatization consultants of Omantel advised the government to delay the proposed strategic disinvestment till March 2001. The government is in the process of setting up a telecommunication regulatory authority to monitor the sector...The government will issue a Telecommunication Law for this purpose. In order to speed up the privatization process, Omantel is currently undergoing a major restructuring process, especially the company’s human resources.” The report also notes that the privatization of Oman’s postal services is being actively addressed and the government is planning a similar regulatory authority for this sector. The privatization of Seeb International Airport is, according to OAB, under tendering process and has elicited obvious interest from 68 local and international companies.

Omani Budgets, 1994-2000

(ORMn)

* Provisional figures for Jan-Oct 1999.

In the power sector, progress has also been made. “They have almost finished the power sector,” one Muscat-based investment officer told MEES. “They have signed for both the Salalah and Barqa power groups. The power sector is now almost completely privatized. And they are close to signing an agreement for the Muscat waste water project.” On 7 January, Oman granted BOT construction and management contracts for the construction of a 200mw capacity power station to be built in Salalah by the Omani firm Dhofar in association with Global of the US. Last year AES Corp of the US won a $411mn contract for the construction and operation of an electricity and water desalination plant at Barqa.

The budget also brings with it the promise of new spending related to the development of the Sohar port and projects connected to the country’s two new major gas pipelines, and progress in these two areas is expected to be accelerated in the coming year (MEES, 4 September). Oman’s Salalah Port Services (SPS) announced on 6 January that it is planning to raise its capital by 29% through a rights issue in a bid to finance the firm’s expansion plans. SPS is also the manager of a free trade zone which is to be established in the port area. “Oman’s credit ratings are improving, allowing these big projects [to secure finance] to move forward,” one analyst said.

© Copyright MEES 2003.