Thursday, January 1, 2009

Oman Budget 2009

Oman recently approved a US$ 16. 42 billion budget for the year 2009 which is drawn up on the basis of oil price averaging at US$ 45 per barrel. The government expects the oil price to stabilize at US$ 60-65 but plans to address a decrease in the average price below US$45 by reassessing its priorities in the budget outlay.

The predicted budget deficit of US$ 2.1 billion correlates to 5% of the GDP and 14% of the total revenue, and is therefore considered “reasonable and acceptable” by the government. If the crude price remains below US$45, the government plans to meet the deficit by withdrawals from the State General Reserve Fund. Over 2007, exports grew by 41% and tourism registered a growth of 22%, enhancing the balance of payment position. The budget projects revenue from income tax to increase 35% (based on last year’s encouraging collections), as well as a 50% increase from customs duties.

In the outlay, oil and gas production accounts for 21%, education and health care for 36% and 12% respectively, and the remaining 31% is distributed over a variety of other sectors. Allocation for ongoing and new development projects has been increased by 10% over 2008.

The budget for the government’s participation in domestic, regional and international institutions has been increased by 43% which would include financing projects undertaken by government owned companies such as Oman Oil Company, and OMRAN. This may also result in financial support for existing industries hit by the global downturn. The outlay also provides for subsidizing development and housing loans in the face of the slump in the real estate sector.

Enhanced project outlay is lauded as auguring well for Oman’s economic outlook and for attracting investment as many countries face recession. Oman has consistently won plaudits for channeling investment to sustainable areas of the economy such as infrastructure industries and tourism. Financial experts view the budget as reflecting the government’s optimism in not expecting any significant downturn in economic activities and paving the way for development projects. However, financial experts still sound a note of caution for companies in Oman to focus more on cash generation to meet existing commitments than on profit margin.