FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
MUSCAT SECURITIES MARKET
ECONOMIC AND POLITICAL DEVELOPMENTS
Muscat Economic and Political Outlook
The long-established structures of political
power in Oman are expected to remain stable
over the outlook period. Sultan Qaboos
continues to command wide popular support,
shored up by the loyalty of the security
services and the strength of Oman’s traditional
social structures. The government is appointed
by the sultan, who is also the prime minister,
defense minister, finance minister and foreign
affairs minister. In late 2007 the government
was reshuffled for the first time in almost three
and a half years, but neither this change, nor
any future reshuffle, is expected to have much
impact on policy. The biggest political risk in
2009-10 is likely to be uncertainty over who will
succeed the long-serving sultan.
Oman’s ties with its most important
international allies–the US and the UK–remain
strong. The US military continues to have
access to at least four Omani bases and the
UK has traditionally provided a large number
of advisers to Omani government
departments, although such support has now
been reduced. The government also has good
relations with its nearer neighbors, including
Iran, and will therefore continue to watch with
some discomfort developments in the ongoing
dispute over Iran’s nuclear program. Oman is
pursuing a policy of directly engaging with Iran
in the hope of finding a diplomatic solution to
the long-running international dispute.
Oman’s economic reform program should be
supported by healthy fiscal surpluses in 2009-
10, although falling international oil prices will
reduce government revenue. The reform
program is intended to diversify the economy
and create employment opportunities for the
rapidly growing young population. The
government will step up efforts to shift the
economy away from its reliance on
hydrocarbons over the outlook period, in part
because of the realization that Oman’s natural
gas reserves are insufficient to support a
wholly gas-based industrial sector. Attention is
likely to focus on tourism and real estate. An
overhaul of tourism development plans was
undertaken after a devastating cyclone in June
2007, and the revised plans concentrate on
reconstructing coastal areas, many of which
may be susceptible to future extreme weather
conditions. The government has also
announced plans to develop better flood
protection in and around the capital, Muscat.
Efforts to increase the role of the private sector
are expected to intensify, especially in
electricity, water and telecommunications.
Economic Performance
Real GDP growth is estimated to have raised
to 6.2% in 2008, owing to stronger export
volumes on the back of higher crude oil
output. The effects of the current series of
enhanced oil recovery projects have begun to
be felt. Liquefied natural gas (LNG) production
will rise only modestly over the outlook period,
and the limited nature of available gas
reserves means that there are no plans for a
fourth LNG train. Export revenue growth is
forecast to decline in 2009 as international oil
prices fall. This, in turn, will have a negative
effect on government expenditure, and, by
extension, private consumption, leading to
slower GDP growth of around 5.7%. The uplift
in the global economy in 2010 together with
rising oil prices and Omani oil output should
lead to stronger GDP growth, which we
forecast at 6.1%.
Key Information Contacts
Ministry of National Economy www.moneoman.gov.om
Capital Market Authority www.cma-oman.gov.om
Oman Chamber of Commerce and Industry www.cbo-oman.org
Financial Corporation www.fincorp.org
National Bank of Oman www.nbo.co.om
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Oman has historically had extremely low or
negative inflation. However, price growth has
recently been on an upward trend, partly
because of the weakness of the US dollar
(and, by extension, the Omani riyal) against
the currencies of Oman’s main import
suppliers, particularly the EU. Estimated that
consumer price inflation will have risen to an
average of 13.5% in 2008, up from 5.9% in
2007. The rising cost of imports is likely to
have a significant impact on local food prices.
Inflation woes will also be exacerbated by
wage pressures, particularly as the
government continues its policy of raising
public-sector salaries and the minimum wage
for Omanis employed in the private sector.
However, with oil and non-oil commodity
prices expected to fall in 2009, it is expected
that inflation to drop, to an average of 10.2%
over the year, and further, to 8.3%, in 2010.
Oman’s fixed exchange rate of
OR0.3845:US$1 is unlikely to come under
pressure over the outlook period. The Central
Bank of Oman remains firmly committed to the
peg, which it has maintained since 1986.
Export revenue is set to rise by a massive 47%
in 2008 before falling by about 19% in 2009
and then picking up again by some 17% in
2010, broadly in line with movements in global
oil prices. The import bill will also continue to
rise, from around US$ 13.3 billion in 2008 to
US$ 17.5 billion in 2010, owing to strong
demand for both investment and consumption
goods. Nevertheless, the trade surplus is
expected to remain large, at an annual
average of US$ 13.3 billion in 2009-10.*
* Provided by EIU-October 2008