Population 3.18 million
GDP 79.974 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
4.2 |
5.2 |
4.9 |
5 |
|
Inflation (yearly average) (%)
|
3.3 |
4 |
3.2 |
3.4 |
|
Budget balance (% GDP)
|
5.5 |
8.5 |
6.5 |
4 |
|
Current account balance (% GDP)
|
8.8 |
14.4 |
12.8 |
8 |
|
Public debt (% GDP)
|
5.4 |
5.1 |
5.8 |
6 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Strategic situation
- Economy undergoing diversification (oil, gas, copper, marble, petrochemicals, steel industry, tourism, port operations)
- Ongoing institutional change
- Relative political stability compared with its neighbours
- Attractive tax regime and openness to foreign investment
WEAKNESSES
- Depletion of hydrocarbon reserves
- Exposure to oil price volatility
- Marked unemployment, particularly among the young
- Dependence on foreign workforce
Risk assessment
Ongoing economic diversification continuing to bear fruit
Thanks to high hydrocarbon prices in 2012 and to rising production, the country has continued to develop its energy sector (which accounts for half of GDP). Growth has also been driven by public spending and domestic demand, a trend which will continue in 2013 with prices held steady, the continuation of state investment in modernising the techniques of oil recovery, and the opening of more oil exploration fields to foreign firms. Revenues from hydrocarbons have greatly increased the state’s investment capacity, certain projects being conducted jointly with the private sector. In parallel, the non-oil sector is now the main driver of growth. Economic diversification is being achieved via the development of the industrial and manufacturing sectors, construction with its numerous infrastructures (ports, railways etc.) and tourism. This investment growth will continue in 2013, notably with the ongoing development of the Duqm special economic zone entailing the construction of a port, an airport, a refinery and tourism infrastructures.
Highly satisfactory fiscal and trade surpluses
The growth of oil and gas exports, a corollary of high world prices, has enabled the country to solidify its balance of payments surplus as well as that of the State’s accounts.
Public finances remain dependent on hydrocarbon revenues (over 85% of revenues). A comfortable fiscal surplus will be maintained in 2013, despite major government investments for infrastructure modernisation, construction of new factories (particularly for gas processing) and higher public spending (particularly on social welfare and education to reduce social tensions, and on defence). The surplus will be underpinned by higher domestic consumption and exports leading to a rise in VAT revenues and customs duties. The continuation of the five-year plan initiated in 2011 and aimed at developing non-oil exports and infrastructures will be boosted by the rise in revenues. In this context public debt levels will remain extremely low. The Sultanate’s two sovereign funds will continue to manage substantial financial assets abroad, thus considerably reducing the consequences of a possible external shock.
Moreover, the balance of trade will be strongly in surplus. Exports of hydrocarbons and petrochemicals and increasing exports of industrial products will offset the growth of imports due to strong demand for consumer goods. This will counterbalance the persistent deficit in services and transfers and result in a very substantial current account surplus, lower, however, than that of 2012.
Slow institutional change, not completely reducing the risks of social tension
Sultan Qaboos bin Said’s response to the big demonstrations at the beginning of 2011 has reduced social tensions. The granting of legislative powers to the Majlis al-Choura (Consultative Council) has on the whole won over the regime’s opponents. However, there were still demonstrations and strikes (notably by employees of several oil fields) in 2012, and demands concerning employment, individual liberties and combating corruption are still as lively. It is thus probable that the government will continue to take strong action against the regime’s opponents, while continuing to move the political system towards a constitutional monarchy while promising employment and wage increases for Omanis.
Nevertheless, two risks remain. The first is linked to high unemployment, over 25%, particularly among the young. This could again give rise to resentment against the government, which is striving to achieve its policy of “Omanising” employment. The second risk, more latent, concerns the regime’s future. The Sultan has not really been the subject of personal attacks concerning his legitimacy since the 2011 reforms. Nevertheless, he remains the only Gulf sovereign who has not named his successor, which, because of his age (72), creates uncertainties.
