MUSCAT: The sun continues to shine bright on the Sultanate as it marches ahead on the road to development, unhindered by the challenges of global meltdown, or the crises in the region.
The overall economic outlook for Oman remains positive for the current year, and with the consolidation of the global recovery, Omani crude oil is expected to fetch higher prices.
This would improve the overall fiscal position as well as strengthen the country’s external balance of payments position, the Central Bank of Oman (CBO) said in its annual report released yesterday.
“Despite fragile global recovery and adverse international developments, the Omani economy performed well in 2010,” the report said.
The Sultanate’s economy had witnessed a significant turnaround with the gross domestic product (GDP) at current prices growing by 23.4 per cent in 2010, primarily driven by recovery in crude oil prices in the international markets, CBO noted, while adding that this is against GDP falling by 22.6 per cent in the previous year.
While nominal GDP emanating from the hydrocarbon sector registered a robust growth of 41.2 per cent, the same from non-hydrocarbon activities witnessed a growth of 11.1 per cent during 2010. As a result, the share of petroleum activities in the overall GDP increased from 40.6 per cent in 2009 to 46.5 per cent in 2010, while that of non-petroleum activities declined from 61.6 per cent to 55.5 per cent during the same period.
Assessment
The government has embarked on the Eighth Five year Plan (2011-15) involving large public investment programme, particularly in the infrastructure sector. “This would sustain domestic demand and strengthen the diversification programme. The medium term fundamentals of the economy remain strong with resilient banking system, stable exchange rate, sufficient foreign exchange reserves, adequate physical infrastructure and above all, attractive foreign investment policy pursued by the government”, the CBO report added.
The report presents an assessment of Oman’s macroeconomic developments and the economic policy environment last year, and analyses different critical sectors of the economy with relevant facts covered under five specific chapters on output, employment and prices; oil and gas; public finance; money, banking and financial institutions; and foreign trade and balance of payments.
Reflecting the recovery of the economy, employment generation in Oman improved in 2010. In 2009, the employment opportunities created for Omanis in the public sector increased by 4.1 per cent over the previous year, while the same for expatriates rose by 2.7 per cent.
“Of the total employment in the public sector, the share of Omanis improved to 85.6 per cent in 2009 compared to an average of 84.6 per cent during the previous three years, indicating steady progress of Omanisation in the country.”
During 2010, private sector employment increased by 9.8 per cent compared to 9.6 per cent in the previous year. The growth of employment of Omanis in the private sector was relatively higher at 12.3 per cent in 2010 compared to 9.3 per cent rise in employment for the expatriates.
Inflation
Last year, inflationary pressures in Oman remained — by and large — under control. The annual inflation rate measured by movement in the average consumer price index (CPI) for the Sultanate stood at 3.3 per cent in 2010, compared to 3.4 per cent in the previous year.
On a point-to-point basis, the CPI inflation in the Sultanate accelerated to 4.2 per cent by the end of 2010 compared to 0.9 per cent a year ago.
Average inflation in Oman in terms of other price indices was slightly higher with Muscat CPI and WPI rising by 4.7 per cent and 4.9 per cent, respectively in 2010.
“Recent rise in commodity prices in Oman was attributed to sustained domestic demand as well as rapid rise in prices of essential commodities in the international markets,” said the report, adding: “Since the global recovery is being consolidated and commodity prices in the international markets are either close to the pre-crisis level, or even higher in certain cases, there is a potential threat to inflationary pressures in Oman, particularly in the second half of 2011.”
Outlook
Since the last quarter of 2008, the CBO has been pursuing accommodative monetary policy. Consistent with the turnaround in economic growth, both money supply and credit growth accelerated in 2010.
The commercial bank credit is likely to accelerate in 2011, in tune with the recovery. Although inflation expectations largely remained anchored in Oman, upside risks to inflation have increased significantly mainly due to rise in prices of food and other essential commodities in the international markets supported by domestic demand.
Sharp rise in prices of essential commodities in the international markets is a matter of concern for the CBO, as Oman is an importer of most of the essential commodities.
“Hence, the major policy challenge, going ahead, would be to control inflationary pressures in the economy. The CBO is, therefore, closely monitoring the price situation in both domestic and international markets so as to take timely actions depending on the situation, without jeopardising the growth momentum in the economy.”
