The government estimates that gross domestic product (GDP) grew by 11.6 per cent in 2007, helped by the price of oil. However, the sultanate faces rising inflation and a fall in the balance of trade, because of the high cost of imported goods.

According to the 2008 budget, which was presented on 1 January, spending for the year will reach RO5.8bn ($15.1bn), compared with RO4.9bn in 2007, an increase of 19 per cent. At the same time, revenues are estimated to be RO5.4bn, compared with RO4.5bn in the 2007 budget - an increase of 20 per cent.

Oil and gas revenues account for 78 per cent of the total, with oil alone providing RO3.6bn, or 67 per cent of all government revenues.

National Economy Minister Ahmed bin Abdulnabi Macki says oil production this year will be 790,000 barrels a day (b/d).

The revenue for oil is based on a conservative price of $45 a barrel. Last year's budget was based on an average oil price of $40 a barrel, but prices remained well above that level throughout the year. As a result, the surplus for last year is estimated to be RO 1.7bn.

Non-oil and gas revenues for 2008 are predicted to be RO1.17bn, up 26 per cent from the previous budget and now accounting for 22 per cent of total revenues. Based on the $45 a barrel oil price, the budget will produce a deficit of RO400m, or about 3 per cent of GDP - a similar level to the figure in last year's budget. However, Macki predicts that the high oil prices on international markets will continue.

The government has wide-ranging plans to improve the country's infrastructure (see story, left). Many of its plans suffered major setbacks following tropical cyclone Gonu, which hit the country in 2007.

In other areas of the economy, RO228m has been allocated for healthcare spending, up 12 per cent on the figure for 2007. This includes the construction of buildings, including a hospital in Masirah and six regional health centres.

A further RO236m has been allocated for the financing of projects planned by the Oman Wastewater Company, Salalah Sanitary Drainage Services Company, Oman Oil Company, Oman Tourism Development Company, Majis Industrial Services Company and the Salalah Free Zone Company. Electricity and water subsidies will cost RO179m.

Despite the strong growth in the economy, Muscat is facing problems. Macki says inflation was 5.3 per cent for the period from January to October 2007, marking an acceleration in the trend of rising prices. He blames the latest rise on higher prices for food and consumer goods.

The balance of trade also fell by 31 per cent in 2007, because of high prices for imported commodities and the falling value of the dollar.