Oman’s Real GDP Growth Rate Projected To Ease To 3.9% By 2012
Oman’s real GDP growth will ease from 6.1% in 2010 to 5.2% in 2011 and then 3.9% in 2012, according to the latest QNB Capital Economic Insight report. Oman’s nominal GDP reached an estimated $58bn in 2010 and is projected to rise by 22% to a record high of $70bn in 2011 and by a further 5% to $74bn in 2012. The Omani government conducts its medium term budgeting on the basis of five-year plans, noted the study. The eighth five year plan (2011-15) is currently underway. According to QNB, nominal GDP in Oman’s oil and gas sector will grow by 36% in 2011. The non-hydrocarbon sectoris expected to achieve strong nominal GDP growth in both years: QNB expects a 10% expansion in 2011 and 11% in 2012. “Looking at GDP by consumption, the important drivers of growth in 2011 are expected to be expanding exports, continuing recovery in fixed investment, and increased government spending,” said the report.
Oman’s revenue from strong hydrocarbon exports ensured consistent budget surpluses during 2002-08, averaging about 1% of GDP. However, the collapse in oil prices in 2009 led to the largest deficit in a decade at 4% of GDP. “Preliminary data for 2010 puts the balance in the red again at 2% of GDP,” maintained QNB. Budget surpluses have been used to pay down public debt, which stood at $2.6bn (5.6% of GDP) at the end of 2009. About three-quarters was foreign debt. The eighth five-year plan predicts deficits averaging about $2.6bn a year in 2011-15. “However, the strong outlook for oil prices means that Oman is likely to be able to meet and exceed expenditure plans without running any deficit at all,” noted QNB. In this scenario, however, the official balance is largely dependant on the proportion of hydrocarbons revenues that are taken into the budget rather than being allocated to reserve funds, the report added. QNB forecasts that growth in spending will likely be 10% in 2011 and 7% in 2012, taking total expenditure to approximately $25bn or 34% of GDP in 2012.
QNB estimates that the oil and gas sector accounted for around 50% of nominal GDP in 2010-11. “The construction sector has experienced the most substantial growth over the last decade,” said the report. Its share of GDP more than tripled from 2.1% of GDP in 2000 to 6.5% in 2009. The industry sector has grown strongly since 2005 after the launch of new petrochemical and metals plants in Sohar. Its contribution increased from 5% of GDP in 2005 to an estimated 8% in 2010, assisted by the government’s efforts at diversification, noted QNB. Oil earnings accounted for 66% of in-budget Omani government revenue during 2006-10. Total government oil revenue in 2010 was $20.4bn. Gas earnings provided an average of 12% of revenue over the same period. Total gas revenue reached $2.6bn in 2010. The largest single budget item is defense, which accounted for 30% of expenditure on average during 2000-09. However, defense has been declining in importance in the budget, falling to 23% in 2009. Current spending also includes subsidies on electricity and water. The government has made significant investment in hydrocarbons, averaging nearly $2.6bn/year in 2006-10. Non-hydrocarbon investment has been even more substantial, averaging $3.1bn/year in the last five years.
Oman was able to consistently post surpluses in its balance of payments in recent years, said the bank. These have steadily boosted Oman’s foreign exchange reserves. As a result, the Central Bank’s reserves reached $13bn at the end of 2010, up from $4.4bn in 2005. “We estimate that the current account returned to a surplus of 2.3% of GDP in 2010, on the back of the global economic recovery and surging exports,” said the report. In 2011-12, QNB forecasts that the surplus will expand further to an average of 3.1% of GDP as a result of higher oil prices. Total exports were $27.7bn in 2009, representing a 27% decrease from 2008. The oil and gas share dipped to 65% in 2009, owing to low prices, but is estimated to have recovered since then. Non-hydrocarbons exports have also grown strongly, particularly minerals and metals.
“As with most GCC countries, Oman historically had a relatively low inflationary environment until the mid-2000s,” said QNB. Year-on-year consumer price inflation (CPI) shot up from just 2.5% in June 2006 to a peak of 13.7% in June 2008, the report pointed out. Inflation declined sharply in 2009, with the year-on-year rate slipping below 1% by late 2009. “However, Oman did not slip into deflation, as some GGC states did, in part because rental prices had not reached the same extreme highs as elsewhere,” said QNB. In 2010, inflation began to pick up again, but only gradually, averaging 3.3% over the year. The eighth five-year plan envisages an average annual inflation of 4%. “We forecast a small pick-up in annual average inflation to 5% in 2011,” said QNB, adding that it expects it to ease back to 3.6% in 2012.
Oman GDP Oman Inflation and Current Account
