The government ratified the new budget for 2010 which is the last year of the Seventh Five-Year Development Plan (2006-2010). The budget was issued by Royal Decree 1/2010, with historical level of expenditures at RO7.2bn. The new budget was the second consecutive budget to be prepared in the backdrop of global financial crisis and world economic downturn. Bearing this in mind, the government continued its expansionary fiscal policy aiming to support the economic growth.
According to announced figures, the new budget will report RO800.0mn of deficit as compared with last year’s historical budgeted deficit of RO810.0mn. The government continued to support its views on the importance to counter the recessionary cycle through increasing government expenditure on major development projects aiming at diversifying the economy even if this would result in deficit. This is mainly as favorable oil prices witnessed recent years up to 1H2008 had allowed the government to accumulate lots of surpluses that would assist in financing any possible deficit.Total revenues are estimated at RO6.4bn, around 13.6% up from RO5.6bn estimated in 2009 budget. As usual, the majority of Omani estimated revenues for 2010 were on account of oil and gas revenues to comprise around 76% of total revenues. The oil revenues for 2010 are estimated at RO4.05bn, an increase of 15% from RO3.52bn estimated for 2009 budget. Such increase is due to major assumption for the current budget where oil price is set at US$50/b as compared to US$45/b assumed last year. Similarly, gas revenues are set to report 19.4% of growth for 2010 estimated at RO800mn. As for non-oil revenues for 2010, they are estimated at RO1.53bn, up 7.6% from RO1.42bn budgeted for 2009.
Total expenditures for 2010 are estimated at RO7.18bn, up 11.8% from RO6.42bn estimated for 2009. The increase in total expenditure is traced back to both current and investment expenditures estimated to increase by almost the same rate of 10% each. As a result both will maintain the same shares in total expenditures as last year accounting for 60% and 30% respectively. Under current expenditures, the budgets for “civil ministries” and “defense & national security” continued to represent the largest shares of 56.0% and 36.4% respectively. Civil ministries expenses are estimated to increase by another 15.4% over 2009 budgeted level, on top of 12.8% growth reported last year. Defense and national securities expenses are estimated to increase merely by 4.5% as compared with 13.6% of growth reported for 2009.
As for investment expenditures, they are estimated to grow by 10.9% as compared with 2.9% of growth budgeted for 2009. Thus investment expenditures are estimated at RO2.13bn for 2010 as compared with RO1.92bn budgeted for 2009. Generally, the increased investment expenditure decided by the government is a matter of policy to continue with key infrastructure and development projects. Finally and most importantly is the ongoing support for private sector as subsides to the sector are estimated at RO620mn, or 27.8% of growth.
As per the Ministry of Economy, Oman is allocating around RO937mn for new projects during 2010 with the aim of creating 4000 jobs for Omani nationals. Such projects include; construction of a number of new schools, operation and maintenance of Al Ghubra portable desalination plant and construction of a number of new health centers in addition to the implementation of a large number of services projects. Finally as per the Minister, the ongoing support for capital expenditure will support the Omani economy to report 6.1% of real economic growth by the end of 2010.
2009 Prudent policies supported real growth & budget outcomeAs per the latest announced official figures, the year 2009 reported better than expected economic growth with real GDP estimated to have reported 3.7% of growth. As per the Minister of National Economy, “Omani economy has shown ability to counter and confront the repercussions of the large decline in oil prices. Following the global financial crisis, Oman oil prices dropped from US$101.1/b in 2008 to US$56.7/b in 2009, a decline of 44%. Despite this, the national economy registered 3.7% of real growth in 2009. The ability of the national economy to counter this external shock stems from a number of factors mainly the increase in oil production rates, the economic policies aiming to further economical diversification and encouragement of investment, and the expanding fiscal policies adopted by the government to support domestic demand, monetary policies and other measures undertaken for liquidity availability and support of the banking and financial sector stability in general.”
Such policies helped the overall economic conditions in Oman which was coupled with higher oil prices. Consequently the fiscal position for 2009 was far better than expected. Ministry of finance announced actual figures for November 2009 revealing actual deficit of RO139.7mn as opposed to budgeted deficit of RO810mn for the whole year.
This was a direct result of actual revenues surpassing budgeted revenues with 107.2% to report RO6.02bn. Actual oil revenues were responsible for such performance as oil prices reported an average of US$55.15/b as opposed to budget assumptions of US$45/b. Actual net oil revenues accounted for 113.2% of budgeted figures reaching RO3.99bn.
Moreover, actual expenditures underperformed the budget figures (95.9%) to report RO6.16bn. However, it is important to note that; underperformance was mainly in current expenditures (89.3%) versus investment expenditures that over performed the budget with 112.9% reaching RO2.17bn. As a result investment expenditure accounted for 35.2% of total actual expenditures for 2009 up from 26.7% last year.Declining public debt...On the debt front, the Omani economy continued to accumulate surpluses over the last five years up to 2008, owing to the upward rally of average oil prices. Thus, the improved fiscal position over years has allowed the government to reduce public debt from 13.9% of GDP in 2004 to 4.2% by the end of 2008. In absolute terms, public debt declined from RO1.3bn in 2004 to RO964.8mn in 2008. Similarly, public debt is estimated to have declined to RO900mn by the end of 2009 accounting for 3.9% of GDP.
Higher oil prices & economic stability will support actual surplus for 2010…Looking forward, the improved global economic conditions in 2010 will shed its positive impact on oil prices that might range US$70/b to US$80/b for the year. Similarly, we estimate Omani crude price to average US$60/b for the most likely scenario and US$70/b for the best case scenario. Thus, given that 2010 budgeted deficit is based on a conservative oil price assumption of US$50/b, actual oil prices would exceed this level. As a result Omani budget will most likely end up with a comfortable surplus in 2010. Moreover, the prudent government policies during 2009 and 2010 for both fiscal and monetary fronts will reap their benefits helping the overall economy to report 6.1% of real economic growth as per Ministry of economy.