Generous budget will fuel inflation

04 January 2008
With Muscat preparing to use a 20 per cent increase in revenues to invest in much-needed infrastructure, it is unsurprising that the sultanate's contractors have welcomed the latest budget.

For the government, the increase in spending is part of its ongoing effort to diversify Oman's economy. The difficulty is balancing the need for growth and diversification with the risk of higher inflation.

Industry and tourism are the two main sectors earmarked for development. The government has allocated $949m to improve ports to support industrial development in Sohar, Duqm and Salalah. A further $348m has been earmarked for airports to bring in more tourists.

Further money will be spent on infrastructure such as roads and sewers, to avoid some of the issues, such as traffic congestion, that have followed growth in the UAE.

Dubai estimates that overcrowding on its roads costs it some $1.25bn in lost revenue each year, but although it is an expensive annoyance, a more serious concern for Muscat is rising prices.

By the end of 2007, inflation was hovering near 7 per cent. With the government spending heavily, the fear is that it will creep towards double digits.

In an effort to deal with this, the government has slowed the pace of tendering new projects to once a fortnight rather than every week. This should help contractors avoid supply chain bottlenecks and escalating materials costs, without denting growth too much.

But with high oil prices providing the capital to fund much-needed investment, and the high cost of imported

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications