Oil price boom fires economy

07 July 2006
Nominal gross domestic
product (GDP) increased by 24 per cent in 2005 driven by rising oil prices, the Central Bank of Oman (CBO) said in its annual report, published in late June. The oil and gas sector expanded by a healthy 44.3 per cent, compared to 17.8 per cent in the non-oil sector. The strong performance of the hydrocarbons sector, which accounted for 49 per cent of GDP and 79 per cent of government revenues, came despite a slight drop in oil production.

Oil production declined by 1 per cent in 2005 to 282.6 million barrels and crude exports by 0.6 per cent to 262.1 million barrels but the value of oil exports saw a 45.3 per cent rise due to high prices. The price of Omani crude surged by 46 per cent to reach an average of $50.26 a barrel in 2005, up from $34.40 a barrel in 2004. Oil and liquefied natural gas (LNG) accounted for 84.2 per cent of total exports in 2005. Production of natural gas rose by 11 per cent, of which 43 per cent was converted into 7.63 million tonnes of LNG for export, the report said.

Record oil revenues which rose by 11.1 per cent to RO 3,227 million ($8,381.7 million) saw the government achieve a surplus of RO 303 million ($786.7 million), in contrast to a budgeted deficit of RO 540 million ($1,308 million). In drawing up its 2005 budget, the government assumed a conservative oil price of $23 a barrel.

Inflation more than doubled last year to 1.9 per cent, mainly as a result of a weak US dollar, to which the riyal is pegged. 'The complex situation of the need for raising interest rates despite the presence of ample surplus liquidity in the domestic market created testing conditions for the CBO in respect of the conduct of its liquidity management operations,' the report said.

The current account surplus widened significantly, reaching RO 1,813 million ($4,709 million) in 2005, up from RO 219 million ($568.9 million) the year before. At the root of the healthy surplus was a near doubling in the trade balance to RO 4,100 million ($10,649 million) which more than offset a 23 per cent increase in worker remittances to RO 868 million ($2,254 million) and a 10 per cent rise in the services deficit.

'Large and increasing outflows in the income and remittance accounts suggest that the use of foreign capital and expatriate workers is increasingly proving costly to the economy, even though dependence on such external factors of production may still appear critical,' the report said.

This year marks the first
year of the seventh five-year plan, which sets a target annual GDP growth of at least 3
per cent. By 2010, annual growth in the non-oil sector is targeted at 7.5 per cent, driven primarily by a 14.5 per cent expansion in gas-based industries and a 7 per cent growth in the tourism sector. Annual inflation is targeted at no more than
2 per cent.


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