Oman spends to curb unrest

09 June 2011

Protests have forced Muscat into raising wages and reshuffling its cabinet. However, in making the hasty concessions the government may have failed to consider the long-term implications

The Omani government was caught by surprise in January as youths took to the streets in towns and cities across the sultanate to voice their frustrations over the lack of job prospects. In a country where criticism of the authorities is not permitted, such a direct challenge to the government is rarely seen. Inspired by the uprisings elsewhere in the Arab world, the young people demanded salary increases and a reduction in the cost of living.

The youth of Oman got upset and accidentally [ruined] the economy, when what they really wanted was a pay rise

Muscat-based professional

Discontent had been brewing for years, particularly among public sector employees, who had seen wages in the private sector rising, while they missed out. On 20 February, the government attempted to placate protestors, announcing an increase in the minimum wage from $364 a month to $520 a month for 150,000 public sector workers.

Oman cabinet reshuffle

Despite this, the demonstrations continued and the focus shifted to political reforms. Violent clashes in Sohar on 1 April forced the government to make further concessions. A series of cabinet reshuffles followed, which resulted in several new faces gaining positions of power.

The political turmoil has spilled over into economic uncertainty. As the new cabinet gets to grips with the issues of the day, important long-term decisions are being neglected. The GCC has offered $1bn a year in assistance for the next 10 years, but inevitably the concessions will take their toll on the public purse.

Oman GDP by sector, 2010
Oil and gas46
Agriculture and fishing1
GDP=Gross domestic product. Source: Minstry of National Economy

Before the protests began, Muscat approved an increased budget for 2011. The expenditure for the year was projected at RO8.13bn ($21bn), representing a 13.2 per cent rise on 2010. Additional funds were allocated for healthcare and housing projects, alongside a continuing focus on human resource development. Education and healthcare accounted for 11.4 per cent and 4.1 per cent of the 2011 budget. The spending plan also included new investment in infrastructure, with roads, airports, ports and housing schemes set to benefit.

While Oman’s economy is diversified by GCC standards, with less than 40 per cent of its income derived from hydrocarbons, the government based its spending plans on increased oil revenues.

This increase relies on two main factors. Firstly, the budget assumes that the average oil price will be higher this year. The state has based its spending on an assumed price of $58 a barrel, compared with $50 a barrel in 2010. This is, nonetheless, a conservative estimate – Oman has a long history of budgeting for low oil prices.

Secondly, the sultanate’s oil production is expected to rise this year. The national oil company is targeting a production level of 896,000 barrels a day (b/d) in 2011, compared with 870,000 b/d last year. Total oil revenues are estimated at RO4.96bn, representing a 22.4 per cent year-on-year increase.

Hydrocarbon reserves and production in Oman
Oil production (thousand barrels a day)810
Oil reserves* (billion barrels)5.6
Oil proven reserves* (share of world total)0.4
Gas production (billion cubic metres a day)24.8
Gas proven reserves* (trillion cubic metres)0.98
Gas proven reserves* (share of world total)0.5
*At end of 2009. Source: BP Statistical Review of World Energy

The spending plan allows for a deficit of RO850m, equivalent to 11.7 per cent of budgeted revenues.

The wage hike for Oman’s many public sector workers will strain the delicate balance of the budget. But there could be other, potentially more severe, repercussions of the state’s concessions to the protestors.

The measures were rushed through to appease demonstrators rather than being implemented in a considered fashion. By increasing the minimum wage overnight by 43 per cent to quell unrest, the government has set a dangerous precedent, which Oman’s young people are unlikely to forget in a hurry.

Some critics even question whether such a radical response was needed. Compared with the other protests in the Middle East and North Africa region, those in Oman were fairly muted, with demonstrators numbering just a few hundred. The media has been accused of dramatising their significance and it was in order to protect the country’s reputation as a destination for business and tourism that Muscat leapt into action. The cabinet reshuffles have left several figures inexperienced in decision-making in key government positions.

Economic forecast for Oman

Oman started 2011 in a strong financial position. Having ridden out the economic crisis, demand for oil, its main export, was beginning to return. The outlook is less positive now. The Washington-based IMF has revised down its growth forecast from 4.7 per cent to 4.4 per cent. The political tension is also weighing on the country’s sovereign credit rating.

“The youth of Oman got upset and accidentally [ruined] the economy, when what they really wanted was a pay rise,” says one Muscat-based professional.  While that statement may be a slight exaggeration, the government’s generous response to the uprising makes the need for real progress to be made in diversifying the economy more pressing than ever.

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