Mon, Apr 21, 2014, 02:44 GMT
 
Log In  Username   Password    Forgot your password? 
   Home   |  Charting   |  Energy Tables   |  Budgets   |  zawya
 
MEES@zawya search
Search MEES  MEES & zawya     
  Edition 
 
All Budgets>
Oman Releases Conservative $7.5Bn Budget With $18/B Oil Price Assumption
MEES
14 January 2002 Volume 46, Issue 2 - FINANCE
 

Oman’s budget for the year 2002, effective 1 January, which was unveiled by Minister of Finance Ahmad 'Abd al-Nabi Makki on 5 January, contains few surprises and no major policy changes, with spending set to increase by 2% compared to 2001 (MEES, 15 January 2001) to OR2.87bn ($7.46bn), revenues set to rise by 0.2% to OR2.49bn ($6.47bn) and a resultant deficit of OR380mn ($987mn), 20% higher than 2001 and 8.9% higher than in 2000 (see Table below). According to Mr Makki, “the deficit estimate represents 15% of the total government resources and 5% of the GDP…[and]...will be financed by the State General Reserve Fund.” He also said that the country had reduced its external borrowing recently while issuing domestic development bonds, but that “internal borrowing…is within the budget estimate of last year.” Mr Makki said that domestic borrowing stands at OR1.4bn ($3.64bn), less than the officially approved maximum of OR1.5bn ($3.896bn).

The figures released by the Ministry of Finance show that the government is predicting a 3% drop in oil revenues compared to the previous year and a 12.2% increase in gas revenues. Spending remains broadly in line with previous years, although the 12% rise in capital expenditures to OR589mn ($1,529.9mn) compared to OR525mn ($1,363.6mn) the previous year is seen as a sign that the budget is growth-oriented. The largest percentage increase in allocations is the 10.7% for capital expenditures at Petroleum Development Oman (PDO), with the largest decrease (and perhaps the most surprising one) being the projected 5.9% cut in spending on Defense and National Security. The allocation for buying and transporting gas has also risen by 172%, but analysts suggest this may be the projected cost of new tanker acquisitions.

Despite these increases, the budget contains few structural changes, with oil revenues still expected to contribute 73% of total revenues in 2002. Support to the private sector – which rose by 38.5% last year in an attempt to promote economic diversification – has declined, while other spending allocations are broadly in line with historical trends. (Average inflation for 2001 is estimated at less than 1%.) The allocation for the country’s human resource development program remains static, despite the government’s nominal commitment to human resource development, Oman’s position as one of the region’s more successful examples of replacing immigrant labor with nationals and the focus in the country’s sixth five-year plan on education and health care. The Finance Minister went to considerable lengths to emphasize that the status quo will not be upset and the government’s welfare role will not be cut back. He said that Oman has no plans to introduce personal income tax or any other type of additional taxes despite the recommendations of the International Monetary Fund (IMF). “The IMF has been sending such recommendations, but what is important is whether we are going to accept all these recommendations,” said Mr Makki, underlining that there is no plan to expand the tax base at present.

Mr Makki also said that “despite the fluctuation of world oil prices during the last few months, we believe there will be stability at an acceptable level if the oil producing countries abide by the agreed reductions.” Oman has based its budget on an oil price assumption of $18/B, somewhat higher than Saudi Arabia’s recent estimate of $15.5/B (MEES, 17 December 2001), but broadly in line with other oil producers’ projections, and is expected to produce around 810,000 b/d for the year (MEES, 24/31 December 2001). The minister projects a positive GDP growth rate of 3% for the coming year – down from the estimated 6.5%, in 2001 but still respectable in light of the global economic downturn.

Mr Makki also reassured the skeptics that the country remains committed to privatization, and said that delays in the Oman Telecommunications Company (Omantel) divestment process are due to adverse global market conditions rather than government hesitation. Oman plans to retain 34% of the company but will offer the rest to private investors. Mr Makki said that he believes that “the market is now receptive for privatization” and that other plans such as the “unbundling” of various projects in the electricity and water sectors remain on schedule. He also reiterated the government’s plans to privatize the postal sector and said that a study is under way in this respect.

In the absence of closed accounts for 2001 an accurate assessment of Oman’s current fiscal position is difficult. It is still not known, for example, whether the average crude oil price for 2001 of $23/B has resulted in a budget surplus given the country’s oil price assumption that was $5/B lower than that. Mr Makki was reported in the local press on 5 January as saying somewhat ambiguously that the possibility of an increase in the actual fiscal deficit in 2001 could not be ruled out. He has also said that the actual deficit for 2001 will be released in March and will be funded by drawing funds from the reserves. However, earlier in the year, on 10 November, Mr Makki said that the country would be likely to have a budgetary surplus at the end of the current fiscal year despite the fall in oil prices in recent months (MEES, 10 December 2001).

In the financial sector, interest in the budget has largely been overshadowed by heightened concerns about the banking sector and the possibility of year-end 2001 accounts showing significant increases in provisioning levels. “It’s a flat budget and not very exciting,” one banker told MEES, saying that the financial community was preoccupied with the current house cleaning process. Oman’s banks are now suffering the negative consequences of very rapid lending growth (multiples of non-GDP growth) in the late 1990s, notably to the personal sector, in the form of declining asset quality (MEES, 2 July 2001).

While the Central Bank of Oman has been addressing the issue for some time, local analysts say that global market conditions have underlined the urgency of the process. “All this time the Central Bank was dealing with the banks with a fairly soft hand, telling them to clean up their books but at their own pace without upsetting the market. Now that auditors are being increasingly questioned about reporting standards and face a greater possibility of being sued by investors, they have told local banks that compliance with the Central Bank’s diluted norms is not enough and that unless banks meet international auditing standards, they will qualify the accounts, which would send a very negative message to the ratings agencies and the international financial community.” Already in 2001, banks were struggling with radically increased provisioning costs and pressure to consolidate was mounting, with National Bank of Oman and the Oman International Bank rumored to be talking of a merger.

While these rumors eventually faded away, Bank Muscat has since led the way in consolidating both domestically and regionally, creating a new banking giant that its competitors will find hard to ignore. The bank recently announced that it had signed a merger agreement with the Industrial Bank of Oman following its earlier purchase of the Bahrain-based commercial operations of ABN AMRO (MEES, 31 December 2001). Moreover in September last year the bank said that it was negotiating to purchase a 20% stake in India’s IDBI Bank (MEES, 1 October 2001). “Egos still block further acquisitions,” argues one local source, who agrees, however, that economic conditions in the coming year and a further decline in asset quality may force the hand of many smaller institutions. And while Bank Muscat’s appetite may have been fed partly by the need to acquire new and cleaner assets, its increased capacity, according to local analysts, sets a good model for other institutions.

Similarly, say brokers, economic facts are forcing the hand of investors. The Muscat Securities Market reported a 24.4% decline for the year at the end of December but is now experiencing something of a recovery, although one that has little to do with government measures taken in this respect. “It’s people who never came to the stock market before who are finding that their one-year deposit made last year at 7% was maturing and the new rate they’re getting is 2% so, they’re shocked and looking for alternatives in the hope of getting a better return. They don’t mind now taking a slight risk even though these are the people who are traditionally stock market averse.”

Omani Budgets, 1997-2002

(ORMn)

2002

2001

2000

1999

1999*

1998

1997

A. Revenues

       2,490.0

     2,495.0

2,091.0

   1,525.0

     1,209.2

    2,012.0

    2,003.0

Net Oil Revenues

       1,819.0

     1,875.0

    1,507.0

      902.0

        751.7

    1,497.0

    1,502.0

Natural Gas Revenues

           83.0

74.0

         70.0

        73.0

         46.1

         69.0

         69.0

Other Current Revenues

          579.0

        518.0

       501.0

      541.0

        411.4

       430.0

       412.0

Capital Revenues

             5.0

            4.0

           4.0

          4.0

-

           3.0

           6.0

Capital Repayments

             4.0

          24.0

           9.0

          5.0

-

         13.0

         14.0

B. Total Expenditure

       2,870.0

     2,812.0

    2,440.0

   2,156.0

     1,738.6

    2,307.0

    2,266.0

Current Expenditure

       2,217.0

     2,215.0

    1,899.0

   1,738.0

     1,390.6

    1,796.0

    1,815.0

Defense and National Security

          871.0

        926.0

       673.0

      613.0

        548.5

       655.0

       698.0

Civilian Ministries

       1,150.0

     1,096.0

    1,027.0

      921.0

        695.9

       932.0

       898.0

Interest on Loans

          110.0

        110.0

       120.0

      120.0

          80.9

 120.0

120.0

Government Share in Current

Expenditure of PDO

86.0

83.0

79.0

  84.0

    65.3

 89.0

99.0

C. Total Investment Expenditure

          589.0

        525.0

       489.0

      393.0

        330.1

       482.0

       398.0

Development Expenditure for

Civilian Ministries

          280.0

        257.0

       250.0

      170.0

        157.1

       235.0

       158.0

Civilian Ministries’ Capital Expenditure

           14.0

          12.0

           9.0

          8.0

            7.7

         11.0

         11.0

Government’s Share in PDO’s

Capital Expenditure

          218.0

        197.0

       183.0

      174.0

        138.9

       194.0

       177.0

Natural Gas Exploration

           12.0

          13.0

         12.0

          6.0

            3.0

           6.0

         10.0

Human Resources Development Program

           35.0

          35.0

         35.0

        35.0

         23.4

         36.0

         42.0

Cost of Buying and Transporting Gas

           30.0

          11.0

-

-

-

-

-

D. Participation in and Support for

           64.0

          72.0

         52.0

        50.0

         17.9

         29.0

         53.0

Private Sector

Current Deficit

          380.0

        317.0

       349.0

      631.0

        529.4

       295.0

       263.0

(Total Expenditures - Total Revenues)

Financing

Net Grants Received

           16.0

          22.0

           3.0

            -  

         (2.1)

           4.0

         10.0

Drawing from Reserves

          380.0

        295.0

       346.0

      631.0

        550.8

       291.0

       253.0

Net Loans Received

            -  

 -

 -

            -  

       (27.9)

            -  

            -  

Development Bonds

         (16.0)

 -

 -

            -  

         36.1

            -  

            -  

Change in Government Accounts

 -

 -

 -

            -  

         27.5

            -  

            -  

 Copyright © 2002 Middle East Economic Survey


© Copyright MEES 2003.

 
© Middle East Economic Survey (MEES) 2014.
 
Printer-friendly format
 
 
Site is optimised for viewing with Internet Explorer and Netscape Navigator v4 and above. Screen is optimised for viewing at 1024 x 768.
Copyright © 2014 Zawya Ltd. and Middle East Economic Survey. All rights reserved.
 About MEES@zawya | User Agreement | Home