Oman’s real GDP expanded steadily over the past few years, with an estimated growth rate of 5.0 percent in 2012, which was lower than government’s target of 7.0 percent and was almost close to the IMF forecast. Oil and gas continue to dominate the Omani economy, contributing more than half of the nominal GDP and almost two-third of net fiscal revenue. However, Oman has successfully executed its diversification strategy as nonoil GDP grew 5.4 percent in 2011 from 3.1 percent in 2009, according to Gulf Investment House's review of the Oman economy.
The nonoil sector’s contribution to GDP rose considerably from 52.7 percent in 2001 to 72.2 percent in 2011. Factors such as high domestic demand, an expansionary fiscal policy and growth in the nonoil economy would bolster economic growth to average 5.1 percent over 2013–17.
Oil production is estimated to expand 1.5 percent annually during 2013-17 compared to an annual average of 5.7 percent in 2008-2011 and a 4.0 percent rise in 2012. As production has become more difficult and complex, diversification programs are gaining prominence. Strong growth in nonoil production is likely to compensate for the weakness in oil production. Factors such as high domestic demand, an expansionary fiscal policy and gains in the nonoil economy would ensure robust economic growth. However, the economy will likely remain vulnerable to any downturn in domestic oil production and fluctuations in oil and gas export prices.
Oman’s trade balance is structurally positive. The country exports more than it imports. This resulted in a manifold increase in the trade surplus to 25.4 billion in 2011 from $ 5.1 billion in 2001. Crude oil and related products continue to be the key reason for the increase in trade surplus. In 2011, oil and gas constituted 70.8 percent of total exports. Higher oil production and prices also supported growth in trade surplus, which otherwise would have been impacted by a surge in imports during the same period.
EIU expects trade surplus to remain at $ 25.5 billion in 2012, but anticipates a slight fall in 2013. The decline could primarily be due to the forecast of lower Brent crude price of $ 104.5 a barrel compared to $ 111.9 a barrel in 2012. Furthermore, the trade surplus would remain substantial throughout 2013-2017, although slower pace of growth in oil production may have a negative impact. Overall, export revenue is expected to increase by an annual average of around 8 percent over 2013-2017, supported by the continued development of Oman's sea ports, which would raise re-export trade.
Vision 2020 outlines the economy’s diversification from oil and steps for privatization and Omanization. It also aims to reduce dependence on the oil sector to 9.0 percent by 2020 and raise the gas industry’s contribution to 10.0 percent. In line with this, the government is stimulating gas and oil related industries such as petrochemicals, fertilizers and aluminum production that, in turn, are driving growth in the manufacturing sector. Paired with this is the carefully structured tourism strategy, aimed at high net worth individuals. One of the main goals of the Tourism Ministry is to represent Oman as a year-round destination.
Oman passed its 2013 budget plan on Jan. 1, 2013. The government aims to stimulate growth in the nonoil sector and thereby pursue its diversification strategy. Revenues are budgeted at $ 28.9 billion, up 27.0 percent from that in 2012. Oil revenues constitute 72 percent of budgeted revenues, with a base price of $ 85.0 per barrel and an average production of 930,000 bpd.
Meanwhile, expenses are budgeted at $ 33.1 billion in 2013, a 29.0 percent increase from the previous year. Current expenditure and investment expenditure will continue to be the key contributors to expenses, resulting in a budget deficit of $ 4.4 billion for 2013. However, government finances will remain vulnerable to changes in hydrocarbons prices.
Inflation rate, which measures the price consumers pay for a standard basket of goods, eased in 2012, led largely by softening of food prices and rent costs. Average inflation in Oman slowed to 2.9 percent, down from 4.1 percent in 2011 and 3.2 percent in 2010.
The decline was primarily due to two commodity groups, namely food, beverage and tobacco, and rent, electricity, water and fuel. Food prices regressed to 2.2 percent in 2012 compared to 4.5 percent in 2011, while rent costs retreated to 2.2 percent in 2012 vis-a-vis 2.8 percent in 2011. Transportation costs however increased by 1.9 percent in 2012 compared to 1.5 percent in 2011. Education soared 15.2 percent during the year, but constitutes just 3.3 percent of the weight on the index.
Meanwhile, the wholesale price index declined to 2.1 percent during the first three quarters of 2012 compared with a rise of 7.5 percent in 2011. Except for agricultural products, which fell 2.3 percent during the period, all of the other components of the index increased at an average rate of 2.4 percent.
Given the fixed exchange rate regime of Oman, the Central Bank of Oman (CBO) has to ensure monetary stability in the current uncertain global environment. The focus remains on liquidity management and supporting growth, while keeping inflation under check. In 2012, banks witnessed excess liquidity, as growth in deposits remained strong. This, coupled with an expansionary fiscal policy, resulted in a significant increase in total money stock.
At the end of 2012, narrow money stock (M1) grew 13.9 percent YoY mainly due to increase in the currency held by the public (9.8 percent) and growth in demand deposits (15.5 percent). During the same period, quasi money grew 9.3 percent. However, its share of the total money stock declined marginally to 68.0 percent in 2012 compared with 68.9 percent a year ago. The rise in quasi money can be attributed equally to time and saving deposits. As a result, broad money stock M2 (M1 plus quasi–money) grew 10.7 percent to $ 28.2 billion.