Report No. 538 OM
OmanRecent Economic Developments and Prospects
July 1965
Country Programs Department UEurope, Middle East and North Africa Region
FOR OFFICIAL USE ONLY
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omA
EXCHANGE RATE EQUIVALENT
US$/RO1975-1984 2.8952
FISCAL YEAR
January 1 - December 31
FOR OMIcAL USE ONLY
This report is based on the findings of an economic missionwhich visited Oman during April 20-May 5, 1984 and was comprised ofMessrs. Heinz Bachmann (Mission Chief) and Sawai Boonma (GeneralEconomist)
This document has a resictedbdibuton and ny be ued by reipisnts only i the perfonnce ofthei offic duties. Its wntents may n othewie be dilod witout Wodd Bank uthorizoL
l
OMAN: RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS
TABLE OF CONTENTS
Page No.BASIC DATA
SUMMARY AND CONCLUSIONS .................................. i - xi
I. INTRODUCTION .. 1
II. RECENT ECONOMIC DEVELOPMENTS. 4
Production Structure and Growth . . 4
Use of Resources... 7
Employment and Labor Force ... 8
Prices and Wages . .. 9
Public Finance ... 10
Trade and Balance of Payments . 12
Monetary Developments ... 15
Second Plan Implementation ... 18
I I I. MAJOR SECTORAL DEVELOPMENTS .23
Oil and Gas . .23
Mining .. 26
Agriculture . .26
Non-Petroleum Manufacturing Sector . .29
IV. DEVELOPMENT PROSPECTS AND ISSUES . .33
General Considerations . .33
The Three Projection Scenarios. 35
STATISTICAL ANNEX
OMAN: RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS
LIST OF TEXT TABLES
Table No. Page No.
1-1 Oman's Selected Indicators for 1970 and 1983 12-1 Growth and Composition of GDP at Current Prices 62-2 Use of Resources 82-3 Price Changes 92-4 Net Operational Results of Government Finance 112-5 Special Government Reserve Fund (SGRF) Operations 132-6 Exports of Omani Origin 142-7 Balance of Payments Stmumary 162-8 Monetary Statistics 192-9 Distribution of Government Expenditures 212-10 Actual and Projected Private Sector Investment 223-1 Crude Petroleum Production and Producing Wells 233-2 Shares of Agriculture and Fisheries in Public
' :ctor Investment 293-3 Structure of Manufacturing Establishments
Registered during 1975-82 304-1 Relation of Growth in Remittances and Non-oil GDP 354-2 Resource Balances Under Alternative Oil Production 374-3 Financing of Investments Under Alternative Oil
Production 384-4 Balance of Payments and Public Savings Prospects
Under Alternative Oil ProducEion 39
LIST OF FIGURES
Figure No. Page No.
1 Oman: Main Economic Indicators 32 Oman: Balance of Payments and Public Finance 5
GLOSSARY OF ABBREVIATIONS
bid - barrels/dayCFP - Compagnie Francaise de PetrolesGCC - Gulf Cooperation CouncilGDP - Gross Domestic ProductGNP - Gross National ProductIMF - International Monetary FundLPG - Liquified Petroleum GasODB - Oman Development BankOMC - Oman Mining CompanyOPEC - Organization of Oil Exporting CountriesPDO - Petroleum Development OmanRO - Rial OmaniSGRF - State General Pension Fund
Page 1 of 2CUINTIY DATA -SA
212.500 sq. km. 1079 thousand (mid-1982) 3.4 per square kmRate of griowth: 4.2S
£051L1ATfL1NCARACThEMSTIC I/ HEALTH (1979)Crude birth rate (per 1.000) 47.0 Population per physician 1900Crude death rate (per 1.0001 14.7 Population per hospital bed 650
ACCESS TO PIPED WATER (1976) ACCFS5 TO t FCTRCTTY (1979)Occupied dwellings without X of population - urban
piped water (t) 68.0 - rural- total
mUTRrnON (1979) EDUCATIO 1J/Calorie intake as S of requirementS ... Adult literacy rate S 2J 20Per capita Protein intake (gras/day) ... Priary school enrollment X 74Index of food projection (1977)
per capita (1969-70=100) 95.0 IP PFR CAPITA 1/ US$6090
GROSS NATIONAL PRODUCT IN 1933 ANNUAL RATE OF & TH (rrrcent eonstant prices)U millions Percent 1979-81 . 1981-k
GNP at market prices 6.968.S 100.0 17.9 13.1Gross domestic investment 2,142.9 30.8 21.5 18.7Gross national savings 2.055.6 29.5 n.a. n7.8Current account balance -88.6 -1.3 7n.7 n.a.Exports of goods. NFS 4,253.9 61.0 41.3 -2.4 .3/
mports of goods. NFS 3,374.1 48.4 38.4 8.3
OUTPUT EMPLOYMENT AND PRODUCTIVITY IN 1983
value Added Labor Force V.A. Per Workeru15stumnens Percent ThLsands Percent e ment
Agriculture 233 3.0 ...Industry 4804 61.0 ...
Services 21 360 a
Total/Average 7874 105.0 ... ...
PUBLIC FINANCE
R0 rlillions Percent of GOP1911 1111 1981-83
Current receipts 1489 54.3 56.5Current expenditures 971 35.4 31.4Surplus/Deficit C-) S58 18.9 22.8Investment 576 21.0 19.6
1/ most recent estimate (1980-82)/ 1972/ Capacity to Inport
Page 2 of 2COUNTRY DATA - OMA
ONEV. CREDIT MDm PuRIS milli of Reals rnd nRtstandinA at end MECANDISE EXPORTS Lt9 d3 AVERLAE)1978 1979 140 1 12L. I? 151 USt BHill ios eermnt
Monty .ugDld 114.3 123.1 154.1 212.7 240.5 266.8 Otl 4.i 99.4BanK credit to public sector 69.9 4.2 3.2 0.6 42.2 31.3 Total 4.Z lIU.UBank credit to private sector 198.4 222.6 283.2 334.3 377.2 468.9
Percentaae of Index Nulers EXTERNAL PUBLIC DEBT DEC. 31. 1933oney 35 Percent of GOP 11.9 9.5 7.5 8.5 9.2 9.8 USSia
GOP oetiator (1978=1001 100.0 129.5 186.5 187.2 170.7 157.6Disbursed only 1.125
Anmual percentage change in: Including undisbursed 1.680GOP deflator ... 29.5 44.0 0.4 -8.8 -5.3Bank creoit to public sector 8.5 -94.0 -23.8 -81.3 6933.3 -25.8Sank credit to private sector 18.7 12.2 27.2 18.2 12.7 24.3
ML ANCE OF PAYMENTS
Millions of US Dollars DEBT SERVICE RATIO FOR 19838 18 19d I= Percent
Exports of goods. IFS 1598 3746 4423 4254 Public Debt 3.4Imports of goods. NFS 1335 20 A3m2 3374Resource Gag (deficit=-) 263 15V4 944 880
Net factor income -110 -109 SS -176Met transfers 2 -325 -6S4 793Current account balance -59 1114 31S -89 TRODIIDA LENDING, DEC. 31 1983
(deficit=-) Js5 millionIBRD IDA
Grants to governOent 20 102 42 147Motanetary capital 17 a0 199 540 Outstanding and 17.4Net errors and omissions -79 -363 290 a disbursedOverall balance (deficit=-) -101 933 846 606 Undisbursed 35.4Gross reserves (end rear) s0 1318 3579 4186 Outstanding incl. S2.8Petroleuxn imorts 96 237 280 41 undisburSed
SUMMARY AND CONCLUSIONS
Oman has developed at a rapid pace since 1970 when it was astarkly backward country with 10 kms of paved roads, 3 schools and 12hospital beds serving 666,000 people in 300,000 square kms. Now, about3,000 kms of paved roads, over 500 schools and over 2,100 hospital bedsserve most parts of the country and the various segments of thepopulation. The change in economic structure was no less dramatic. From aclosed subsistence economy in which most people were engaged intraditional-type small-scale agriculture, fishing, small trade andhandicraft, it now has a complex modern sector and developed internationaltrade. Wiile oil production and exports which began in 1967 have played animportant part in Oman's recent development, another crucial factor was thereplacement of a traditional and static Government in 1970 by a verydynamic one which made economic and social progress its top priority andestablished the necessary administrative machinery. In spite of rapidprogress and an average per capita GDP of $6,250, the country's presentinfrastucture, physical and human, remain still way below that of countrieswith a similar per capita income level.
ii. As the most urgent administrative and infrastructural needs werebeing covered, the First Five Year Plan (1976-80) gave higher priority todiversification of the oil-based economy, wider geographical distributionof investment, stimulation of private sector investments and enhancingskills of the domestic population. Considerable progress was made inreaching these objectives. The Second Five-Year Plan (1981-85). withobjectives similar to those of the First, has been under implementation forfour years now; early indicators show that the overall investment targetswould be achieved, but with significant changes in the sectoral composition(para xiii).
Recent Economic _Dvelopments
iii. Economic developments since 1980 have been characterized by amarked slow-down in overall economic growth, declining exports, andstagnating Government revenues. Imports and Government expenditures,however, have continued to grow, causing a substantial deterioration in thebalance of payments and the public finance situation. For the first timein six years, the balance of payments and the budget showed small deficitsin 1983. Although deficits for now remain manageable (1-2 percent of GDP),and the debt service ratio is still less than 3 percent of exports, theweakening trend since 1980 gives rise to some concern about the optimallong-term development path. This is because a continuing deterioration inthe current accounts of the budget and the balance of payments would soonmake it necessary to expand oil production and exports beyond the levelconsidered optimal by the Government from the point of view of the bestlong term use of its finite oil resources.
iv. Since oil and gas still account for half of GDP, developments inthis sector have a profound influence on the overall performance of theeconomy in the short and medium term. Although the average daily oilproduction in 1983 exceeded the 1980 level by 38 percent in volume, theprice decline of 23 percent (together with other factors) caused the value
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added in current terms to go up only 6 percent (about 5.6 percent in realterms), compared with 22 percent increase realized during 1975-80. Therapid growth of Government expenditures, together with the momentum builtup in the private sector earlier, led to continued expansion in the non-oileconomy, at over 20 percent per year in current prices or at a slightlyhigher real rate due to declining prices. Starting from a small base,manufacturing expanded 67 percent p.a. in 1980-83. Reflecting rapidexpansion in Government services, public administration grew by 23percent. Construction and trade grew by 16.7 and 18.8 percentrespectively; agriculture and fishing a little more slowly, but still at arespectable rate of 15 percent annually. In 1983, most importantnon-hydrocarbon activities were public administration (13.2 percent ofGDP), trade (11.6 percent), miscellaneous services, construction andhousing (close to 7 percent each), agriculture (3.0 percent) andmanufacturing (2.3 percent).
V. The rapid decline in the balance of payments surplus reflects thefact that consumption, investment, and transfers grew more rapidly thanGDP. Consumption grew more than twice as fast as GDP since 1980; currenttransfers even more rapidly, reflecting substantial increases in the numberof expatriate workers transferring large parts of their salaries abroad.These combined to put a squeeze on savings and on the resource balance,which has shifted from a large surplus (18.6 percent of GDP) in 1981 to asmall deficit in 1983 (0.8 percent of GDP).
vi. The public finance situation, also depends predominantly ondevelopments in the oil sector. Oil income still contributed directly 85percent of Government revenues in 1982-83, a decline from 91 percent in1978-79. Other revenues include sales of natural gas, electricity andwater, investment income, customs duties, and corporate income taxes. Nopersonal income tax is levied. Between 1978 and 1981 Government revenuestripled (in current terms), recurrent expenditures doubled, and publicsavings increased 5.7 times, exceeding development expenditures by a largemargin. Over the last two years, however, the trend reversed. Revenuesslightly declined, recurrent expenditures -ontinued to grow rapidly(particularly on defense and security), and public savings declined by some30 percent. As a result, by 1983 total development outlays exceeded publicsavings by about 10 percent, with the gap financed largely by foreign grantaid.
vii. Oil exports account for over 99 percent of total export earnings.Other exports are fish, live sheep and goats, dried limes, and beginning in1983, copper. Although the value of non-oil exports tripled over the lastfive years in current terms, they will continue to play only a minor rolein the foreseeable future. Most of Oman's imports (80-90 percent) consistof consumer and investment goods. Consumer goods imports in the past fewyears have grown more slowly than consumption (0.84 elasticity), whileinvestment goods imports have grown more rapidly than gross investment (1.2elasticity). The overall import-GDP elasticity is about 0.9. In 1983,total imports declined slightly because the completion of a domestic oilrefinery had made imports of most oil products unneccessary.
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viii. While the balance of foreign trade continues to show largesurpluses, Oman has an increasing service account deficit; imports ofservices account for about 10 percent of total imports and have grown veryrapidly (1.9 elasticity vis-a-vis GDP). Together with the large outflow ofworkers' remittances and companies' profits, they account for a weakeningbalance of payments trend and for a small deficit in the current account in1983.
LX. Oman has received grants from neighboring countries in recentyears, sufficient to finance about 10 percent of development outlays andmore than enough to cover the small balance of payments current accountdeficit in 1983. Substantial inflows of direct investment by oil companiesand some long-term loans contracted since 1981 also contributed to theincrease in international reserves which stood at nearly $4.2 billion orover one year of imports at end 1983; these include about $2.3 billion offoreign holdings of the State General Reserve Fund. With recentborrowings, Oman's external debt now stands at slightly over $800 millionand the debt service remains only at about 2-3 percent of exports.
x. Monetary developments closely followed developments in the balanceof payments and in the macroeconomic aggregates. Due to large balance ofpayments and savings-investment surpluses for many years prior to 1982, thebanking system became increasingly liquid and the excess of deposits overcredits was deposited abroad, leading to a sharp increase in net foreignassets of the banking system. During 1976-83, money in circulationexpanded slight'ly less than GDP, a major reason for the declining inflationrate (see below). Due to lower inflation, real interest rates are nowsubstantially positive. Another favorable development is that commercialbanks are gradually playing a more important role in the financing ofprivate investment. Traditionally well over half of private borrowing wasfor the financing of trade, particularly imports. This-share fell below 48percent, in 1983, when lending to other sectors increased sharply.
xi. Lack of comprehensive data make estimates of changes in prices andwages difficult. However, on the basis of limited information, inflationhas slowed down drastically: the increase in the food price index sloweddown from over 10 percent in 1980 to 3 percent in 1982; the index showed anabsolute decline of about 2 percent in 1983. Prices of building materialsincreased about 14 percent per year in 1980-81 but declined 10 percent in1982 and 6 percent in 1983. The Central Bank of Oman estimated that, ingeneral, wages had kept pace with prices. Government employees had anaverage salary increase of 10 percent per year in 1979-81 but non since.Data from labor cards issued to expatriates indicate that pay for theseworkers have not materially changed in current terms over the past fewyears.
xii. Total employment is estimated at about 450,000 in 1983. Omanisaccounted for less than 43 percent, a dramatic decline since 1978 whenOmanis formed close to 66 percent of the labor force. This has taken place
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despite the fact that the Omani labor force has grown at a rapid rate - 6percent per year. The largest group of Omanis (34 percent) was employed inthe Government, followed by those in agriculture (full or part-time, 30percent), informal sector (20 percent) and formal private sector (12percent). Most expatriates (75 percent) were employed in trade andconstruction and less than 10 percent were employed by the Government.Most expatriates are manual, low-skilled workers employed by the privatesector. They tend to replace Omani workers who move to better-paying jobs,and increasingly also familv workers, notably women and children, who havegiven up working. This enables more Omani children to go to school andwill have long-term favorable effects, although it has a cost in terms ofproduction foregone and of larger workers' remittances sent abroad.
Second Plan Implementation
xiii. The Second Five-Year Plan (1981-85) envisages developmentexpenditures of R.O. 2154.7 million: 66 percent for civil ministries, 25percent for the government's share in oil prospecting and production, and 9percent for support to the private sector. During the first three years,overall Plan implementation has been slightly ahead of schedule: totaloutlays were over 67 percent of the planned amount.
xiv. These aggregate figures, however, conceal wide differences amongagencies. Among the major civil ministries, Ministry of Post, Telegraphand Telephone, and Ministry of Agricu.ture show the lowest ratio of actualexpenditures, at 28 percent and 30 pert ent of allocations, respectively.Ministry of Petroleum and Minerals achicved the highest expenditure ratio(91.7 percent) followed by the Ministries of Electricity and Water (70percent) and of Health (70 percent). In addition, a substantial number ofprojects which were not part of the Plan have been implemented, (R.O. 346millions or 24 percent of total investments), in particular construction ofcivil nature carried out by the Ministry of Defense and National Security.
xv. As a result, the carefully balanced public investment program asproposed in the Plan (25 percent hydrocarbons; 25 percent other directlyproductive sectors to diversify the economy; 30 percent transport, energyand water infrastructure; 20 percent human resources and miscellaneous) hasbeen modified considerably during implementation. Most importantly, thecombined share of hydrocarbon and diversification investments declined from50 to 36 percent of total public investments, in particular because oflower than planned investments in agriculture and in public support to theprivate sector. This raises the question why implementation of projects inthese sectors, particularly agriculture, was so weak even though they arehigh priority sectors for economic diversification. There could be manyreasons for this, e.g. projects were included in the Plan before they wereready, underestimating the difficulty of carrying out the projects andprograms in a complex sector, etc.. In addition, however, the combinationof low rate of implementation in some high priority sectors with large
investment for projects not mentioned in the Plan might suggest somecompetition for scarce development funds and for the limited implementationcapacity.
xvi. Private (including foreign) investment on the other hand was ontarget during 1981-83. More than half of privaLe investment was in the oilsector, indicating a high exploration and development activities. Inresponse to continued high demand, private investment in housing continuedto grow accounting for close to 29 percent of total private investment.Private investment in directly productive sectors other than oil, however,remains small (12.5 percent of total private investment) despite strongGovernment attempts to encourage them. Among these, manufacturingaccounted for the largest share (9.8 percent) while agriculture andfisheries accounted for only 2.7 percent of total private investment during1981-83. A combination of delays in Plan implementation of the publicinvestment program and relatively low private investment does not augurwell for agriculture as an alternative to oil.
Maior Sectoral Developments
xvii. Oil was discovered in Central Oman in 1962, development began in1964, and exports started in August 1967. Since then new discoveries havebeen made and oil has been the leading motor of economic growth. Oman isnot a member of the Organization of Petroleum Exporting Countries (OPEC).Its pricing, however, is based on OPEC prices. Not being an OPEC memberand being only a small producer on the world market, Oman's oil productiondoes not come under any internationally agreed production and exportquotas. As a result, the country has been able to increase its productionto compensate for t;ae 1983 price decreases, when major OPEC producers hadto cut theirs.
xviii. Although the Second Five-Year Plan had set an oil productionguideline of 330,000 btd, the decline in oil prices necessitatedsubstantial production increases without which revenues would have declinedconsiderably, adversely affecting the Government's economic and socialdevelopment programs. Production in early 1984 averaged about 410,000b/d. Government policy is to maintain output close to this level for thenext five years, except if oil prices decline significantly and no otherrevenues were forthcoming to maintain the economic and social developmentprograms. Present production capacity is in the range of 600,000 b/d to 1million b/d. Current estimated reserves of about 3.4 billion barrels wouldlast 23 years at the current level of output, and about 19 years if outputwere increased to, say 500,000 b/d, and only 9 years at the rate of Imillion b/d.
xix. Until October 1982, Oman exported all its crude oil and importedrefined products for domestic consumption. A Government-owned refinerywith a capacity of 50,000 b/d became operational in November 1982. Its
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produ^ts are sold through private distributors at prices comparable to theinternetional level.
xx. Government is studying the feasibility of another refinery forheavy crude produced in the south. This is separate from a much largerproject based on heavy Saudi crude and domestic gas, which has beenconsidered in the context of joint industrialization programs of the GulfCooperation Council (GCC) but which is not pursued further for the timebeing. Government has no investment plans at the moment for otherdownstream projects, such as petrochemicals.
xxi. Natural gas is found throughout Oman, often in small quantities.Proven reserves are estimated at 7 trillion cubic feet. At presentutilization of about 300 million cubic feet per day, proven reserves wouldlast up to 60 years. Besides oil field injection and operations, gas isused mainly for power generation and desalination, in copper mining andsmelting, in cement production, and in the Rusayl Industrial Estate; verylittle gas is now being flared. Except for supply to the copper complexwhich is free until 1985, the gas price is set at 50 percent of oil priceat equivalent heat content. At this price, Government indicates that itmore than recovers its capital and operating costs. Government policy isto encourage further exploration and development of gas bnt not to considerdevelopment of gas-based industries such as fertilizer and petrochemicalsso as to conserve gas for domestic use, particularly for oil fieldoperations and power generation; this would leave more oil for export.
xxii. Oman has proven deposits in comercial quantities of only fewminerals - copper, chromite, and gypsum. The most important miningproject is the copper mine and smelter (17,000 t/y), completed in 1983.Based on known deposits near the present smelter, the project life is 10-12years, but additional deposita are expected to be discovered. Copper isbeing exported at present until downstream industries start to process itlocally. Copper tube and wire manufacturing is being considered. Largequantities of chromite have been found. Currently knowae deposits couldsupport a 100,000 t/y project for 40 years. Limited world market, however,is a major constraint. Very large deposits of gypsum have also beenfound. At the moment only limited quantity is being exploited for cementmaking.
xxiii. Agriculture has greatly declined in relative importance since thestart of petroleum production in 1967; it currently accounts for only about3 percent of total GDP. It still, however, provides employment, much of itpart time, for about 30 percent of the Omani population.
xiv. Dates account for about half of the 41,000 hectares now undercultivation. Mangoes, limes, bananas, alfalfa and vegetables account formost of the rest. Except for dates and limes, subsistence agriculture hadalways been the main feature of this sector. Increased demand has led torapid development of vegetables as a cash crop in recent years. Oman is a
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net exporter of dates and limes, but a net importer of other products. Themain constraint for crop production is lack of water. Timited rainfall(100 mm. per year) and of underground water resources have made expansionof crop acreage difficult. This situation is aggravated by recentoverpumping and salt water intrusion in the agriculturally-rich areas alongthe northeast coast. Labor shortages have recently become another seriousconstraint, reflecting the rapid rural-urban migration. To overcome theseconstraints, Government has invested in various agricultural projects andhas provided numerous incentives for the private sector. These include,e.g., setting up and expanding agricultural research stations; expandingprograms to provide agricultural inputs at subsidized prices; providinggrants for Falai maintenance; setting up an agricultural credit bank. Awater retention dam is being built as a pilot project on the Batinah coastthat might lead to substantially improved use of surface water.
xcxv. Livestock production is concentrated mostly in the southernregion. The 1978-79 rural sample survey counted some 1.2 million goats,320 thousand cows, 230 thousand camels, 140 thousand sheep and 40 thousanddonkeys. Most rural households also raise poultry. Recently modernpoultry farms for broilers started to emerge. Government has supporteddevelopment of this sub-sector through various programs, includingestablishment of research stations, carryirng out research in dairyproduction, bee-keeping, poultry farming, and fodder production andgrazing. In addition to a veterinary hospital in the South, Governmentalso established several veterinary centers in other parts of the countryand quarantine centers on its borders.
uxvi. Coastal Fishing is an old established traditional activity alongOman's long coastline. The number of traditional fishermen hascontinuously declined from about 15,000 in the early 1970's to about 6,000at present. Their productivity, however, has increased greatly as a resultof Governmeat investments in fishing ports, cold storage, fishing boatmotorization, etc. Limited activity has also been started by modernfishing companies. Various studies undertaken to estimate the marineresources have indicated that fish stock could suPport a considerablylarger annual catch than presently achieved, but expansion has beenconstrained by (i) out-dated equipment and fishing methods, (ii) a shortageof entrepreneurs, and (iii) inadequate modern fishing and marketingfacilities. To overcome these constraints, Government is expanding anumber of programs and has participated in a modern fishing company. Ithas also started work to ascertain more scientifically the exploitablemarine resources of the country. This is obviously an importantprecondition to any major investments by Government or the private sectorin expanding the modern fishing fleet.
xxvii. Until a decade ago, the manufacturing sector was limited tosmall-scPle handicraft establishments, weaving, pottery, silver and goldjewelry, etc. Starting in the mid-1970's, new industries were introduced
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- soft drink bottling, dairy processing, cement block making, etc.Subsequently larger and heavier industries started to emerge, such ascement plants and copper smelter. As a result the value-added in thissector has increased 10 times since 1976 but from a very low base so thatthe sector still remains small, accounting for only about 2.3 percent ofGDP in 1983.
XXV1iii. The Government has launched numerous programs and projects tostimulate investment in manufacturing in recent years. First, it hasparticipated directly in major industrial projects. The flour mill hasbeen highly successful and has been partly sold to the private sector.Other major government projects are a cement plant, the copper mining andsmelting project, and the oil refinery. Programs to stimulate privatemanufacturing inzestments include numerous incentives such as exemptionfrom import duties for equipment and raw materials, selected tariffprotection, a five-year tax holiday, provision of infrastructure, includingan industrial estate, and interest subsidies.
xxix. During the Second Plan (1981-85), Government has planned to investdirectly R.O. 81.2 million in manufacturing. At the end of 1983, R.O. 67.3million or 82 percent had been spent. For private sector investments,however, the shortfall is evident. While R.O. 235 million of privatemanufacturing investments were projected for the five years, only R.O 58million were actually invested during the first three years or less than 25percent of the total. One reason for this lag is that entrepreneurs remainreluctant to invest in manufacturing as long as trade and real estate allowthem to achieve more profits more rapidly. At the same time, as the mostobvious import substitution projects have already been implemented, furtherinvestments will have to be more sophisticated and increasingly moreexport-oriented and, thus, will be more difficult.
XXX. Two other constraints for expansion in manufacturing are lack oflabor and domestic raw materials. Manufacturing growth has so far dependedheavily on expatriate labor and imported raw materials. At the end of1982, there were more than 8,000 expatriates working in manufacturing.Lack of census data makes it difficult to estimate the number of Omanisemployed in this sector. In most modern establishments, however, themajority of employees are non-Omanis. The future expansion ofmanufacturing hinges partially on how fast Omanis can be employed inmanufacturing, as well as on how much more expatriate labor the countrywants to accept. Since the major part of the value-added is provided byexpatriate laborers, who transfer a large part of their incomes abroad, theimmediate advantage of more rapid industrialization is rot obvious. Thequestion has to be asked: "What is left for Oman?" In the short-termperhaps two intangibles - training Omanis and providing linkages tosectors where Omanis are more heavily employed, such as publicadministration. In the medium and longer term, however, manufacturingindustries will have to play an increasingly important role, to diversifythe economy away from hydrocarbons.
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Development Prospects
xxxi. Despite rapid economic and social development over the pastdecade, Oman's economy remains heavily dependent on one-product, oil, whichprovides over half of income, most of government revenues and virtually allof foreign exchange. The prospects for short and medium-term economicgrowth depend, therefore, largely on developments in the oil sector. Omanhas exploitable oil reserves that would allow present production tocontinue for about 23 years. It currently produces about 410,000 b/d andfaces no technical and market constraints if it chooses to produce more.In the short and medium term, therefore, Oman could finance substantialincreases in public expenditures and in imports without creatingunmanageable balance of payments bottlenecks. The fundamental issue facingOmani policy makers today is, thus, not one of immediate financialconstraints but one of the optimal long term use of limited non-renewableoil resources. Such a fundamental question can only be decided at thehighest political level. Although a production guideline of 330,000 b/dset for the Second Five Year Plan has since been exceeded by over 25percent, all indications are that the Government's basic policy has notchanged and that considerations of long term development still receivepriority over more rapid short term growth. Given Oman's limited resourceendowment this would appear to be a wise policy, which will allow fulldevelopment of the country's human resources before oil runs out.
xxxii. Based on these considerations, macroeconomic projections have beenmade using three oil production levels of 400,000 b/d, 450,000 b/d and500,000 b/d. Their purpose is to demonstrate how the economy could developwithin these constraints. The projections are based on gradual oil priceincreases in nominal terms to $48.6 per barrel in 1992 as projected by theWorld Bank in early 1985.
xxxiii. All three projection scenarios hinge crucially on the assumptionthat Government's annual recurrent expenditures not increase by more than10 percent in current prices (about 3.8 percent in real terms). Publicinvestments are projected to grow at a slightly lower rate than GDP so thatthe overall investment rate falls marginally from 26.5 to 25 percent ofGDP. Equally important are efforts to slow down the very rapid increase intransfers abroad of workers' salaries which jumped 3 1/2 times between 1978and 1983. The three projection scenarios assume - maybe optimistically -that workers' remittances will grow in the future much more slowly than inthe past, not exceeding growth of total GDP; and this for several reasons:(i) as a result of the impressive education effort of the last decade, anincreasing number of well trained young Omanis will soon join the laborforce; (ii) if Government recurrent expenditures will indeed expand lessrapidly than before, a smaller number of young Omanis will be able to getgovernment employment, and more will look for employment in the privatesector; and (iii) the projected slight decline in the overall investment
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rate ought to slow down somewhat the growth in construction activities, asector were expatriate labor has been particularly important.
xxxiv. Under Scenario 1, with oil output of 400,000 bld and an oil priceincreasing to $48.6 by 1992, GDP can grow at about 3 percent per year inreal terms provided that growth potential in other sectors is realized: 5percent for agriculture and services, and 8.5 percent for the non-oilindustrial sector. With growth of government recurrent expenditureslimited to about 3.8 percent, total government consumption would grow onlyslightly faster than total GDP. Average annual growth of privateconsumption is projected to slow down slightly from the past trend of 18percent (in current prices) to under 12 percent. Under this growth andexpenditure scenario, the resource balance surplus declines drastically tounder 3 percent of GDP in the early 1990s, compared to 11 percent in 1983.With continued growth in workers' remittances, the current account deficitof the balance of payments would reach 13 percent of GDP; national savingsavailable for investment would decline from about 26 percent of GDP to lessthan 14 percent on average in 1990-92. As a result, nearly 46 percent ofinvestment would have to be financed by external sources. Even assumingsubstantial inflows of foreign grant aid and of foreign direct investment,foreign borrowing would have to reach nearly 12 percent of GDP by 1990-92.In consequence, the foreign indebtedness would quickly rise, and theforeign debt service ratio would probably reach 23 percent of exports by1992 if all the necessary borrowings were under commercial terms. Thissuggests that the growth rates of public consumption and of investments asoutlined above are not sustainable in the long run at this level of oilproduction.
xCxv. Scenario 2 assumes an oil output increasing to 450,000 b/d by1986. With a similar set of assumptions as above, overall GDP growth,obviously, would be slightly higher (3.4 percet p.a.). While the balanceof payments current account would also turn into deficit, it would remainlower (about 8.7 percent of GDP) and the need to finance investment fromabroad would be less (30 percent in 1990-92). Foreign borrowing wouldstill increase to over 7 percent of GDP in the early 1990's and the debtburden would continuously increase with a debt service ratio reaching 13percent by 1992. This, clearly, is a marginal scenario; it could allow theGovernment to adjust its policy without the need for immediate compressionof expenditurec; it, however, is not sustainable in the long-term.
xxxvi. Scenario 3 assumes an oil output increasing to 500,000 bld by 1988and remaining at that level thereafter. Overall GDP growth would be around3.9 percent per year. With a similar set of assumptions as above, thecurrent account deficit would be limited to not more than 5 percent of GDPby 1992 and gradually decline thereafter. Only about 14 percent ofinvestment need to be financed by borrowing in the early 1990s, keeping thedebt burden much more manageable with the debt service ratio reaching about8 percent by 1992. This clearly is a sustainable scenario. It, however,
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entails a substantial increase in oil output and thus shortens the life ofthe presently known oil reserves.
xxxvii. In conclusion, the three projection scenarios demonstrate clearly,that a substantial slow-down in the growth of public expenditures andworkers' remittances is crucial to attain the Government's goal ofmaintaining oil production near present levels while continuingsatisfactovy economic growth. Continuation of the past high growth trendsof these two variables would force Government to raise oil productionsubstantially, resulting in a corresponding shortening of the time periodduring which Oman can count on substantial oil revenues. Even underoptimistic assumptions, however, i.e. a marked slow-down in the growth ofpublic outlays and workers' remittances, oil production most likely willhave to be stepped-up to as much as 500,000 b/d by 1988 in order to keepforeign financing within manageable levels. This 50 percent increase overthe 330,000 b/d Second Plan target, would represent a major change in oilproduction policy and should lead the Government to re-evaluate itslong-term development strategy. Under the present outlook for oil prices,the options appear quite clear, i.e., either oil production has to beincreased substantially or expenditures drastically reduced. Should demandfor oil continue to be weak and export prices turn out to be substantiallylower than the levels used in these projections, the issue of increased oilproduction vis-a-vis reduced expenditures would become even more urgent.These circumstances represent an opportunity for the Government tore--examine its options when it launches the Third Plan in 1986.
I. INTRODUCTION
1. Oman has developed very rapidly since 1970. Indicators in Table1-1 attest to this pace. In 1970, the whole country of 300,000 square kns.had only 10 kms. of paved roads, 3 schools and 12 hospital beds for anestimated population of 666,000. These limited facilities were all locatedin the capital area of Muscat, while virtually no modern infrastructureexisted in the interior of the country. By 1983, however, the picture haschanged substantially: The country is now fairly well inter-connected withprimary roads and modern communication facilities. Increasing numbers ofremote villages have access to modern social services suc'- as schools andhealth clinics, and nomadic Beduins are served by mobile aealth units; bothchildren and adults have access to learning centers.
TABLE 1-1: Oman's Selected Indicators for 1970 and 1983
1970 1983
Length of asphalt roads (kms.) 10 3,222Number of schools 3 518Number of students 980 166,844Number of hospital beds 12 2,132Number of telephone lines 557 21,370Number of bank branches 6 175Population (thousand) 666 a/ 1,200 b/
a/ Estimate based on UN databu Estimate
2. Nevertheless, Oman's total capital stock, physical and human isstill way below that of an average country with comparable per capita GNP($6,250 in 1983), reflecting the very recent date of economic takeoff.Until commercial production and export of oil began in 1967, Oman hadlargely a subsistence economy. But during 1967-70, no attempts were madeto utilize increasing oil revenues for economic and social development andthe population continued to subsist mainly on limited, traditional typeagriculture, fishing and small-scale trade. Efforts at development beganin earnest only following the 1970 change in Government. At first theyfocussed heavily on creating the most obvious social and transportinfrastructure without need for much comprehensive macroeconomic planning.
3. This, however, changed with the launching of the First Five-YearPlan (1976-80). It aimed, inter-alia, at diversifying the economy awayfrom oil and from infrastructure construction, wider geographicaldistribution of investment, and increased participation and enhancingskills of domestic human resources. Private enterprise would be the mainmeans of achieving economic growth. The Plan aimed at an average annualgrowth rate of 1.6 percent in real terms for GDP and 3.1 percent for GNP,assuming a sizeable decline in outward remittances of profits and wages.
4. These targets were surpassed, even though oil production(accounting for nearly two-thirds of GDP in 1976) declined by close to onefifth between 1975 and 1980. The 1979/80 oil price increases, whichdramatically improved Oman's terms of trade and Government revenues helpedgreatly to stimulate growth. Rapid expansion of Government expenditures,recurrent and investments, were the main mechanisms to plow the sharplyincreasing petroleum revenues back into the economy. As a result, growthof GDP in 1975 prices exceeded 3 percent per year and that of GNP was evenslightly higher, with oil production declining by 3.8 percent p.a. but thenon-oil sector expanding at over 11 percent p.a. These constant pricefigures, however, do not convey the right impression of the rapid economicgrowth taking place during this period. As a result of the markedimprovement in the terms of trade, real purchasing power (i.e. nominalgrowth of GNP minus price increases of imports) expanded by close to10.5 percent p.a. during the five years of the first plan, with petroleumproduction and the non-oil sector growing at about the same rate. Aspublic expenditures (recurrent and investments), while growing quiterapidly, did not increase as fast as petroleum revenues, Govermentaccumulated substantial reserves between 1979 and 1981 and the balrnce ofpayments showed large surpluses.
5. The one major worry at that time was the increasing exhaustion ofthe early oil wells, provoking a substantial decline in oil production,from a peak of nearly 135 million barrels (365,000 b/d) in 1976, to littleover 103 million (282,000 b/d) in 1980, the lowest level in nearly 10years. This decline, obviously, did not augur well for Oman's future;fortunately, however, as mentioned below, new oil discoveries soon reversedthis trend.
6. Another factor of increasing concern was the rapid growth offoreign labor needed to maintain this economic boom. As discussed in moredetail in paras 19 and 20, even the very rapid growth in the Omani laborforce and in the education system proved by far insufficient to satisfy therapidly rising demand for labor, quantitatively as well as qualitatively.Thus, growth became increasingly dependent on the inflow of foreign laborwhich increased its share in the total labor force from a very smallpercentage in 1970 to an estimated one-third in 1975 but over 57 percent in1983. Among others, this resulted in a sharp increase in workers'remittances, which have become a serious drain on the balance of payments.
7. Investment, both public and private, exceeded Plan targets,especially those undertaken by the oil company Petroleum Development Oman(PDO) and those related to construction of civil nature by defense andsecurity agencies. Major manufacturing projects such as cement and oilrefinery were also started. Due partly to continued rural-urban migration,investment in agriculture and fisheries remained below target.
8. The Government launched the Second Five-Year Plan (1981-85) withobjectives similar to those of the First Plan but with a higher growthtarget for aDP of around 4 percent. Achievement during the first threeyears of the Plan are discussed below.
* - Figure 1
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Oman: Moin Economic Indccotor
70 dGNP
60
40-
30 CLernt X
*o - /# 10 mmmmmmm
0
1978 1979 1980 1981 1982 1983M-' RO400 - B5in ofPamw
Curn Account Surplks300-
200 -
100
-la
1978 1979 1980 1981 1982 1983Min RO
40 - Pubic RnonceNet Operaional Result
300-
200-
100 _
0
1978 1979 1980 1981 1982 1983
1Growth in cuent nces defled ty the pes d InDo u*iol countries onutactured exs (MLI)
Waoid DBok-26635
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II. RECENT ECONOMIC DEVELOPMENTS
Production Structure and Growth
9. Economic development since 1980 has been characterized by a markedslow-down in overall economic growth, declining exports, and stagnatingGovernment revenues. Since imports and Government expenditures (recurrentand investments) have continued to grow, at only slightly lower rates thanbefore (Figure 2), both the balance of payments and the overall publicfinance situation have worsened substantially (Figure 1). However, as theworsening trends have started from a situation of large surpluses achievedbetween 1979 and 1981, they have not resulted in a serious situationneither for the balance of payments nor the budget by 1983; while both showdeficits for the first time in six years, these deficits remained verysmall and easily manageable, particularly considering the substantialamounts of reserves accumulated over the last five years. Thus, it is thedeclining trend since 1980/81 rather than the actual situation at end 1983that gives rise to some concern.
10. These concerns do not relate so much to the short and medium-termgrowth prospects and creditworthiness of the country, as to its optimallong term development path. As a result of the recent additional oildiscoveries and the nearly completed upgrading of its main oil pipeline,Oman now has the capacity to expand oil production and exportssubstantially above present levels if the balance of payments and publicfinance situation so require. In addition, net foreign exchange reservesreached well-over one-year's imports at end 1983. As pointed out clearlyin the present Development Plan, however, Government is very reluctant toexpand oil production substantially, so as to spread out Oman's stilllimited oil resources over a longer period of time. This very rational andjustified policy could be jeopardized by a continuation of recent importand public expenditure trends, which might force the country into higheroil production and a more rapid run-down of its oil resources than wouldseem desirable from a long term development perspective. It is with thisgeneral economic framework in mind, that the following assessment of recenttrends and development should be read.
11. With just about half of total GDP produced in the oil and gassector by 1983, the Omani economy remains heavily dependent on hydrocarbonproduction and exports. In fact, developments in that sector explain mostof the unfavorable trends mentioned above. While the period 1975-1980 wascharacterized by a substantial decline in oil production for technicalreasons (more than compensated, however, by the sharp increase in oilprices), the situation has exactly reversed since then; thus, by 1983 oilproduction had exceeded the 1980 level by nearly 38 percent (389,000 bld),but since prices had declined by almost 23 percent in the same time, valueadded in current terms had increased by little over 6 percent, or about 2percent a year; a marked slow-dowi compared to the average annual growthrate of 21-22 percent for oil and gas achieved between 1975 and 1980. Eventhough international inflation 1/ had dramatically improved from an average
1/ i.e. MUV, the price index of industrial countries' manufactured exportsas published by the World Bank
Figure 2
-5-
Oman: Balance of Paymrns and Public Fnance
Baklnce af PaymentsCunentAccount
WLrrRO
1U00L IAOO-
1200 -
800-
60D0 4
4M - ~ ~ ~ ~ ~ ~ nm~ Forelgn ExchogW Eaw 2iM
200
1978 1979 1980 1981 1982 1983
?MIn RO Pubic Finiance
IAOD
120D
800
60D0
400 -
Total Revenres2D- m*.* - - Total Exenaditue (curerti't 8c hwesmrnets)
sesesee PLulicSaving
11978 1979. -1980 11961 1982 1963
*o ipI pk_ I wow.ofpr*AI&wiWs .
YVbId Sa*-26636
annual increase of 9.5 percent during 1975-80 to an average decline of 3.4percent during 1980-83, the difference in oil sector growth in real termsbetween the two periods remains substantial. (+5.6 percent p.a. versus11 percent p.a.); as other economic variables, particularly imports andpublic expenditures adjusted only slowly and marginally to this markedlyslower growth in oil revenues, the deteriorating trends in the balance ofpayments and the Government accounts became unavoidable.
12. In part reflecting the momentum built up in the private sectorover the previous years, in part reflecting production by a number of majorGovernment projects that were completed during the period (oil refinery,copper mining) and in part reflecting continued high growth in Governmentexpenditures (+18% p.a. in nominal terms), the non-oil half of the economycontinued to expand rapidly, at over 20 percent p.a. in current prices,even more so in real terms, given that prices seem to have generallydeclined during the period. I/
TABLE 2-1: Growth and Composition of GDP at Current Prices(In percent)
Share of GDP Annual Growth Rate1980 1983 1980-1983
Oil and natural gas 62.4 50.7 2.4
Agriculture and fishing 2.6 3.0 15.2Manufacturing 0.7 2.3 67.7Construction 5.7 6.9 16.7Trade 9.1 11.6 18.8Housing 6.2 6.8 13.2Public administration 9.5 13.2 22.8Miscellaneous services 4.5 6.2 25.1Sub-total non-oil 37.6 49.3 20.1
Total GDP at factor costs 100.0 100.0 9.7
Memo item: GDP at factor costsin millions RO 2058.0 2719.6
Source: Development Council, Technical Secretariat.
13. Manufacturing showed by far the highest rate of growth at almost68 percent per year in nominal terms during 1980-83 reflecting mainly theadditional output of the newly established oil refinery. Despite this veryhigh growth, the sector remains quite small, contributing only slightlyover two percent towards total GDP or less than 5 percent towards non-oil
1/ Oman does not provide a constant price series for GDP and the limitedprice information available (see para 21) does not allow to constructone easily.
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GDP in 1983. Next to manufacturing, public administration and miscellaneousservices grev the fastest, (23 percent 2nd 25 percent p.a. in current termsrespectively), reflecting the expansicnr of gover-ment programs to providemaore social and other services. The number of civil servants (Omanis asvell as exp¢rriates) increased from 38,S40 in 1980 to 54,877 in 1983 or byabout 9 percent per year. 1/.
14. Expanding activities in the above sectors and in pubLic investmentinduced growth in construction and in trade (io.7 percent and 18.8 percentp.s. in current prices respectively). Resl gr-cwth 4as even higher,particularly in construction since pr_cas oa conscruccion materialsdeclined by 10 percent in 1982 and by over 6 percent in 1983. Re-exporttrade has also expanded rapidly, adding to3 -he dcmas tic vaLue added in thisactivity; re-exports more than doubled during 1;80-83, from R.O. 45.3million to R.O. 110 million. Growth in housing reflects the continuinghousing boom in the private sector as well as the Government's low costhousing program for low income families. The number of low cost housesincreased from 2,244 in 1980 to 2,766 in 1983 or by about 7.3 percent peryear.
15. Value-added in agriculture and Hshing grew by a respectable 15percent annually; the sector remains very small, however, accounting foronly three percent of GDP. Labor shortage caused by migration to moreattractive occupations has been a factor attributing to stagnation of somecrops such as dates and limes; but growing demand for fresh vegetabLes,meat,.and fish has helped increase output of vegetables, livestock andfisheries. Furthermore, exports-of livre sheeps and goats to neighboringcountries and of fish to the Far East ha-ve ex=anded rapidly since 1980,albeith from a very low base (para. 2S;.
Use of Resources
16. The use of resources has char.i - .ed a:: since 1980, asconsumption, investments and current-t;ansfers na2e continued to growrapidly, inspite of the marked slow-dow,n in the growth of total GDP and GNP(Table 2-2). As a result, saiings wera swLaezed and the national resourcebalance, (i.e. the domestic resource balance minus current transfers) hasshifted from a large surplus in 1980 (L3.; percent of GDP) to a deficit in1983 (-0.8 percent of GDP). Tais means rta: in 1983 Oman used (consumed,invested and transfered abroad) slighcL' more resources than its economyhad produced. National savings declined by one sixth in absolute terms andwere not quite sufficient to finance all domestic investments. The smalldifference was more than covered by foraign graat aid, however, (Table2-7). What has little changed is the e:Z_reme foreign trade dependency ofthe economy. Well over half of the total domestic production was exportedin 1983 and close to half of all goods and servicas consumed or invested inOman were imported. These ratios are only slightly below those in 1978.
17. Consumption has grown more than twice as fast as GDP since 1980and its share in GDP has risen by over 10 percentage points in three yearsfrom a low level of little over half of GDP to a more usual level of over62 percent. Both Government and private conawnption increased their shares
T/ There were 23,445.0manis' in the civil service in 1980, and 33,543 in1983. These numbers exclude employment in defense, police, GeneralTelecommunications Organization, and Cantr31 Bank of Oman.
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in GDP. As a result, there has been almost no growth in domestic savingsand the domestic resource surplus declined sharply. The most rapid-growth,however, was in current transfers, (over 30 percent per year) reflectingsubstantial increases in the number of expatriate workers (see para. 90),.and in transfers of profits abroad. As a result national savings declined5.9 percent per year in nominal ternms and fell below the level of domesticinvestments, which in turn had grown at over twice the speed of GDP.
TABLE 2-2: Use of Resources(In percent)
Share of GDP Annual Growth Rate1980 1983 1981-83
Consumption 51.8 62.1 16.7(Public) (24.2) (28.5) (16.0)(Private) (27.7) (33.7) (17.3)
Investment 22.3 26.5 16.3(Public) (14.8) (19.3) (20.1)(Private) (7.5) (7.1) (8.1)
Resource balance 25.9 11.4 -16.3Current transfers -7.3 -12.2 30.6GNP 92.7 87.8 7.9Domestic savings 48.2 37.9 1.4National savings 40.9 25.7 -5.9
Memo item: GNP at market pricesin millions Ro 2066.6 2741.3
Source: Development Council Technical Secretariat
18. As mentioned before, these trends obviously have long-termimplications for the economy if they are not turned around soon. To dothis, growth of consumption should be slowed down, particularly publicconsumption. The investment rate, although critical for future growth incertain areas, is relatively high (26.5 percent of GDP) could be lowered.Among others, this could help to slow down the inflow of expatriateworkers, and, thus, the outflow of workers' remittances.
Employment and Labor Force
19. Total employment is estimated at about 450,000 in 1983, includingthose related to defense and security forces. 1/ Of these, less than 43percent were Omanis. a substantially lower share than in 1978, when Omanisaccounted for close to 60 percent of total employment. Although growth ofthe national labor force has been extremely high, at over 6 percent peryear. the number of expatriates grew at an even higher rate of about 20percent per year during this period.
20. It is estimated that the largest share of Omanis are employed inthe public sector - about 34 percent; nearly 30 percent are engaged in
It These estimates are based on Table 43 of the Second Five-YearDevelopment Plan, Tables 1.2, and 1.3 of the Statistical Appendix, andthe growth rate of national labor of 6 percent annually.
agriculture and fisheries, many of them part time only; about 20 percent inthe informal sector; and, only about 12 percent in the formal privatesector where the large majority of jobs is held by foreigners. Less than10 percent of expatriates are employed by Government. In the privatesector, about three quarters of expatriates are employed in trade andconstruction mostly in semi-skilled and unskilled positions which are notvery attractive to Omani nationals. Those Omanis who are not working inagriculture and in the informal sector tend to prefer employment in publicadministration to manual, low skilled jobs in the private sector. Anotherphenomenon is that expatriates are hired not only for jobs created afterthe oil boom - construction, services, technical skills - but increasinglyalso for traditional jobs in agriculture and fishing. In 1983, 8,921 laborcards were issued to expatriates in this sector, compared to 6,655 in1980. These expatriates have replaced not only Omaui workers who havefound better paying jobs in other sectors but also some family workers,women and children, who withdraw from the labor force because incomesearned by adult male members of the family are sufficient to allow them tohire expatriate helpers. This enables children to attend school and willhave a favorable longer term effect on economic and social development.But replacing of Omani adults by foreign workers carries a cost to theeconomy, in terms of foregone production and in terms of workers'remittances sent abroad.
Prices and Waxes
21. Lack of data make precise estimates of price changes difficult.Data are available on consumer prices for food, beverages and tobacco inthe capital area, and on prices of building materials. The food priceindex indicates that the rate of domestic inflation slowed-downsubstantially from over 10 percent in 1980 to less than 3 percent in 1982and to an absolute decline of about 2 percent in 1983 (Table 2-3). Pricesof building materials increased rapidly in 1979-81 but declined in1982-83. The declining trends reflect mostly price trends for exports ofOman's major trading partners and the effective appreciation of the OmaniRial, which is pegged to the appreciating US dollar. In addition muchlower trading margins have been reported as a result of increasedcompetition and high levels of stocks after the economic boom of the late1970s came to an end in 1980. The evidence shown by these two priceindices clearly indicate that domestic inflationary pressures have beensuccessfully arrested.
TABLE 2-3: Price Changes(In percent)
1979 1980 1981 1982 1983
Prices of food, beverages and tobacco 3.6 10.2 6.1 2.7 -2.1(capital area)
Building materials 5.0 13.7 14.3 -10.0 -6.2(unweighted average)
Source: Development Council, Technical Secretariat.
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22. Data amwages ar -veon mre Limited than tloe an prices. sat theCentral Dank of : estiied that wages i gMeral d kaept pace withPi . 1 n t ployee- hbad an averhasaary increase of 10 Percent
in i*418t ogL toa of it. for Gnas a housing allowane of 40-SOpercet of saZe7 was -introdued La L.- general salary incrae hasbew warded since them. Dat. du Labor cards -ism to expatzite andassociated pay Indicate tbhae fEt the. mjwity of e tre who aemnkillied and semi-skilled and are emplyed in comatauction and tzade, paybas not chag in the pas- few yeas. --ftuwhile. the sttipated minmummonthly wag for unskilled.wrk bas IncreasedE fEt ,LO. 36 in 1979 to R.0.60 In 1980 and bas reined at tbat-level si1cs-
Public Fince
23. Th. public finance situation. de_pe s rin mntly on devlopmetsIn the oil sector. This is clearly GemosItrateWby the fact that beforethe latest ijor round of'oil price-Increasesr _ In 197940, the netopeational results of the budget (revenue less recurrent expendi tue andinvestmets) sboved a considerable deficit- in 1978. Th oU priceincreases and resultin jump in revenues cbmge that deficit Intosubstantial surpluses in 198041. T oe dtl-- pric. decne Is 193. althoughmre than compensated by production increases, agin turnd the budget Intoa deficit (Table 2-4).
2.. Wbile the sha of oil inco Mas declied somewbat fra over 91percent of totaL Governmt revenues In 1978-79, to about SS i 192643. itstill remins the pzedominant soure'of public, revenue. Other souzces ofrevenues include sales-of- natural.g.F- interest incom generted by bothdirect investmet and by opeations: of the State -General Resezve u(SGRF), sales of electricity and water, cusom dutie, corporate cotax, vehicle registration fees, and administrative fees and charg. Nopersonal income tax is levied in Omn. During the past five years. oilrevenues have increased by over 22 percent p.a. and other revenus by 32percent for a total average of 24 percent per year. This indeed Is afavorable development. Revenues-increased very rapidly between 1978 and1981 but slightly declined since tten.
25. The rapid growth in revenues has been accompanied by almot ssfast a growth in expenditures. Recurrent expenditures grew at an anualrate of about 21 percent over the past five yeas, while developmentexpenditure grew at close to 23 percent annually (see paras. 41 fordiscussions an Second Plan Implementation).- Overall the Annual growth wasabout 21.5 percent per year. The slightly lower growth of recurrentexpenditures than tat of revenues resulted in substantially larger publicsavings in 1983 tean had been achieved in 1978. Hower, while publicsavings were Indeed quite high in 1983. exceeding one third of Governmntrevenues, and sufficient, to finance .9Q percent of total public Investments,the trend over the last two years was clearly negative. Over the last 6years Omen received cosiderable auntw of grats- from neighboringcountries, financing an average of 10 percent of development outlays.Public savigs improved very rapidly between 1979 and 1981- but declied inboth 1982 and 1983 by a total of nearly 30 percent. nh public financeperforwace could have been even better if e_Fgrowth in defene andsecurity related expnditures had been lower than 21.5 percent nuallyduring this period. Defeme spending i-s by far the larg"t ite In therecurrent budget accounting for over 58 percent of total recurrent
itur.
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TABLE 2-4: Net Operational Result of Government Finance(In millions of Rials Omani)
1978 1979 1980 1981 1982 1983
RevenuesBudgetOil 458.0 635.1 1.095.5 1,341.3 1,215.7 1,277.5Gas - 3.5 14.0 18.1 18.9 20.2Miscellaneous revenues 38.3 47.0 58.6 80.1 85.0 116.9Interest income 5.7 6.7 19.8 38.6 14.3 9.3Sub-total. 502.0 692.3 1.187.9 1,478.1 1,333.9 1,423.9
SGREInterest income - - 9.3 37.3 96.6 65.1Total 502.0 692.3 1,197.2 1,515.4 1,430.5 1,489.0
Recurrent ExpendituresBudgetDefense and security 201.1 246.4 347.7 450.0 497.9 530.4Other ministries 138.1 144.5 214.8 272.5 315.7 362.7Public debt 16.4 19.7 21.1 15.5 17.5 19.2Sub-total 355.6 410.6 583.6 738.0 831.1 912.3
PDO Operating CostsGovernmnt share 18.0 24.0 35.3 47.1 55.7 58.7Total 373.6 434.6 618.9 785.1 886.8 971.0
Public savings 128.4 257.7 578.3 730.3 543.7 518.0
Development ExpendituresDivan, defense, security 63.4 22.6 59.1 71.9 83.4 140.3other ministries 88.9 129.5 168.9 241.0 289.0 290.7PDO (government share) 33.8 63.6 77.8 76.4 106.2 86.4Sub-total 186.1 215.7 305.8 389.3 478.6 517.4
Loans and ParticipationsNet 25.0 l1.4 25.1 49.4 47.5 58.5Total 211.1 227.1 330.9 438.7 526.1 575.9
Net Operational Result -82.7 +30.6 +247.4 +291.6 +17.6 -57.9
Grants 6.7 61.9 35.2 50.0 14.7 50.7Foreign net borrowing(long-term) -10.2 -13.0 1.0 50.5 41.0 162.8
Net Change in Government Reserves -86.2 +79.5 +283.6 +392.1 +73.3 +1535.6
Source: Development Council Technical Secretariat
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26. Among development expenditures. the fastest growth (close to 27percent per year) has been in the civil ministries. Projects carried outby Divan, defense and security agencies have grown at a much slower pace.accounting for about 27 percent of total development outlays in 1983. Asdiscussed in para. 42, one problem with this expenditure component is thatit was not part of the overall development plan. As such there is acertain risk that projects under this category may not be well coordinatedwith other development projects and may in fact draw resources away fromhigher priority projects and programs.
27. The Government established State General Reserve Fund (SGRF) in1980 against future risks and depletion of oil reserves. The Fund'sresources come from oil revenues, budget surpluses and investment income.There has been a substantial increase in the SGRF over the past four yearswhich stood at about R.0. 1 billion at the end of 1983 (Table 2-5), ofwhich almost R.0. 0.8 billion represents more than ha'f of the country'sinternational reserves (see para. 36).
Trade and Balance of Payments
28. Oil exports dominate Oman's foreign exchange earnings accountingfor over 99 percent of total exports. Other exports, which as a group havetrippled over the last five years, comprise mostly agricultural products -fish, live sheeps and goats, dried limes, and dates (Table 2-6). Wheatflour is a product of the Oman flour mill which uses imported wheat andexports a small part of its production. The only non-agricultural exportof significance is copper which came on stream in 1983.
29. Exports of live animals, fish and unprocessed tobacco grew rapidlyover the past few years, while those of fruits and vegetables, includingdates and limes, have stagnated or declined. This reflects partlyincreased domestic demand of these latter products, partly stagnation andperhaps some decline in their domestic production because of water andmanpower shortages (see para. 66).
30. Oil export earnings almost tripled between 1978 and 1981 becauseof the major price increases; in volume terms, the increase was small, from116 million barrels to 120 million barrels in 1981 but more rapid in 1983(129 million barrels) despite the start of production of the localrefinery, which absorbed nearly 10 percent of local oil production. Totalearnings were lower in 1983 because of the decline in prices. In additionto exports of domestic goods, there is a growing transit trade through Omanto neighboring countries not included in Table 2-6. It quadrupled between1978 and 1983 from under R.O. 27 million to over R.O. 110 million to reachover 8 percent of total domestic exports in the later year. It consists toabout 70 percent of transport equipment, mostly passenger cars.
31. Most of Oman's imports (80-90 percent) consist of consumer andinvestmen; goods. Growth of consumer goods imports in the past few yearshas been rapid but slightly below the growth of consumption, with anelasticity of about 0.84 during 1980-83. Investment goods imports,however, have grown at a much faster rate, with an elasticity of around 1.2with respect to domestic gross investment. Total imports, net ofre-exports, have grown at a slightly lower rate than GDP with an overallelasticity of not more than 0.9. These elasticities, however, have to be
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TABLE 2-5: State General Reserve Fund (SGRF) Operations(In millions of Rials Omani)
1980 1981 1982 1983
Budget BasisTransfers to SGRF 219.6 326.1 158.3 172.2(from surplus of previous year) (55.8) (125.0) (-) (-)(trom current surplus) (163.8) (20L.1) (158.3) (172.2)Annual Profit 9.3 37.3 96.6 65.1(interest + exchange profits)
Total addition to the Fund 228.9 363.4 254.9 237.3
Withdrawal from SGRF - - 60.0 80.0
Annual increase in the balance of SGRF 228.9 363.4 194.9 157.3
Cash BasisTransfers to SGRF 219.6 326.1 158.3 172.2Annual profit 9.3 37.3 96.6 65.1(interest and exchange profits)Total addition to the Fund 228.9 363.4 254.9 237.3
Withdrawal from SGRF - - - 98.2
Annual Increase in the balance of SGRF 228.9- 363.4 254.9 139.1
Total actual holdings (end of rear)in local banks a/ 54.1 89.2 145.2 208.0invested abroad bJ 174.8 503.1 702.0 778.3
Total 228.9 592.3 847.2 986.3
a/ Part of net government deposits in the local banking system as included inmonetary statistics.
b/ Part of net foreign assets as included in monetary statistics and thebalance of payments.
Source: Development Council Technical Secretariat
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TAIE 2-6: -Exports of tmai Origin(La ftusaris of Erials ouni
1978 1979 1980 198. 1982 1983
Oil 521,800.0 745,700.0 1,244,600.0 1,526,400.0 1,409,600.0 1,346,6W0.
Non-oilE ie e - 6.9 30.6 67.0 356.3 1,120.4Fish 571.7 1,485.1 2,003.3 2,619.2 3,746.5 4,388.1Fzuits ,egtables, fresh 110.0 306.4 525.8 402.8 413.1 322.6Dates 310.0 577.8 199.3 284.4 363.8 315.3liz, dried - 1,520.4 1,544.2 786.8 2,163.3 1,493.1 1,25.1Ileat flour 779.3 751.7 999.6 8386 850.0 664.3Tobacco, ussmuifactured 28.1 34.7 18.2 18.5 322.6 196.2Copper and copper alloy, refined - - - - - 1,947.8Other products 3.4 10.4 0.6 132.1 193.1 429.1
Subtotal non-oil 3,322.9 4,717.2 4,564.2 6,525.9 7,738.5 10,634.9
Grannd Ttbal 525,120.0 750,420.0 1,249,160.0 1,532,93D.0 1,417,340.0 1,357,230.0
&ot=e: Development (biwil, T;cbnica1 Secretariat.
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interpreted with care. In addition to data limitations, it is difficult toestimate the impact on imports of the upsurge in oil prices in 1979-80 andthe subsequent decline in oil prices in 1983. Another difficulty relatesto the existence of large unrecorded imports which were estimated by theCentral Bank at 17-20 percent of recorded imports over the past threeyears. Although most of these are reported to be defense relatedmaterials, some other goods also came in this way. Such data limitationsmay explain some of the large and wide fluctuations in the item "net errorsand omissions" in the official balance-of-payments accounts.
32. Imports showed an absolute decline in 1983 due to the coming onstream of the domestic refinery which can meet the entire demand forrefined products and cut imports of hydrocarbon products by nearly R.O. 83million. Net of hydrocarbons, imports increased by over 4 percent innominal terms but about 7.3 percent in real terms.
33. The balance of trade showed a large and increasing surplus eachyear during 1979-81; the surplus has declined since then, despite lowerrecorded imports in 1983, because of the decline in oil export earnings(Table 2-7). Oman has also increasing deficits with regard to trade inservices - about 10 percent of total imports. In fact, between 1978 and1983, imports of services increased by over 40 percent p.a. reflecting animport elasticity of nearly 1.9 vis-a-vis total GDP. Profit and workers'remittances grew quite rapidly, with an average elasticity of net outflowsvis-a-vis GDP of over 1.2 during the 1978-83 period. Growth of remittanceswas particularly high during the 1980-83 period when growth of total GDPslowed down markedly; it is related more closely to growth in the non-oilsector than to growth in the economy as a whole. Rapid growth in factorpayments of remittances was offset somewhat by increasing receipts frominterest income from Oman's international reserves.
34. Overall, however, the current account deteriorated quickly in 1982and 1983 and shows a deficit in the latter year. The deficit, however,remains small at about 1.2 percent of GDP, and is more than covered byofficial grants. In addition, substantial inflows in the form of directinvestment by oil companies and by long-term foreign loans also added tooverall surplus. The consistent balance of payments surplus has resultedin a substantial increase in net foreign exchange reserves which now standat over a year of imports of goods and services. With recent additionalborrowing, Oman's external debt now exceeds slightly $800 million or about10 percent of GDP, its foreign exchange reserves, however, reached nearly$4.2 billion at end 1983. The debt service remains very small at about 2-3percent of exports.
Monetary Development
35. Monetary developments closely followed developments in the balanceof payments and in the macroeconomic aggregates, i.e. they reflect thepersistent large balance-of-payments surplus and the excess of nationalsavings over investments between 1977 and 1982, and the slight worsening of
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TAU 2-7: . Laze of kay£P ts SamryMrllion RO. in Oirmt Pdixs
1978 1979 1980 1981 1982 193
Eqaort of goods 552.0 787.4 1,294.6 1,621.9 1,527.7 1,469.3(oil) (521.8) (745.7) (1,244.6) (1,526.4) (1,409.6) (1,346.6)Iqort of goods -4383 -493.2 -7.3 -94.3 -1,087.1 -1,041.7Servies (ne) -22.9 -31.8 -46.5 -95.5 -114.4 -123.7
h1a e of goods aul services 90.8 262.4 534.8 586.1 326.2 303.9
Profit remittanes -39.7 -43.8 -59.5 -10464 -114.5 -126.6Interest (official) 1.6 -7.6 21.8 79.4 133.2 65.9Workers' remittacaes -73.3 -85.9 -112.4 -15.8 -236.1 -273.8
Qirrent accomt balarwe -20.6 125.1 384.7 406.3 108L8 -80.6
Direct ituesonen (oil) 9.4 26.4 29.5 25.7 46.3 65.1official gVants 1/ 7.0 63.3 36.2 50.0 15.6 50.7Offirial loug-tena borrowing (net) -8.2 -3.8 4.7 50.4 41.7 131.8Official short-term borzowimg (net) 2/ 4.9 -27.1 -6.3 -10.9 -19.4 -10.5
Capital balazxe 13.1 88.8 641 115.2 84.2 237.1
Eriurs and onissiuns -27.3 -81.2 -125.4 -40.5 100.3 2.9
Overall Belre (+ = surplus) * -34.8 102.7 3234 481.0 293.3 209.4
Fonmig assets (end of peziod)Barcirg systen 27.8 130.6 280.6 436.1 534.2 667.4S3F 3/ 174.8 503.1 702.0 78.3
Total 27.8 130.6 455.4 939.2 1,236.2 1,445.7
1/ lwiuding SDR al ocI ions (R.o. 1,4 million in 1979; 1 million eunh in 1960 and 1982)2/ Includirg oil eaport credits3' Foreign assets caly
Pmcrks: SF consided part of the uetaty sytem. MRus, SW inuesbts are not ccxuideedas cqPital outfle but as an inerease in net foxign assets
Souice: entral Bank of tuan
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the situation in 1983. During these years, the banking system has becomemore and more liquid, as deposits have increased much more rapidly thancredits to the economy. The difference has been deposited abroad, mostlyshort term, leading to a sharp increase in net foreign assets by theCentral Bank, the commercial banks, and SGRF. 1/ Over the entire period1976-83, money circulation expanded somewhat less rapidly than GDP. Duringthe last three years, however, when GDP growth slowed down drastically,money supply (Ml as well as M2) expanded much faster (by an average of 14percent and 21 percent p.a. respectively, as compared to only 9.5 percentfor GDP). Nevertheless, thanks largely to declining import prices,inflation slowed down during these years and was even negative in 1983.
36. The two most striking developments in monetary growth over the1978-83 period have been the very rapid - and closely interrelated -increases in net foreign assets and in net government deposits; theyincreased from nearly zero at the end of 1977 to R.O. 1.4 billion and R.0.1.05 billion respectively at end 1983. This reflects the sharp increasesin Government petroleum revenues, well above the immediate needs andabsorptive capacity of the country so that large parts of these revenueswere deposited and invested abroad. While the growth of both aggregateshas slowed down sharply after the 1980 peak year, it has continued even in1983, although the overall government budget was in slight deficit in thatyear (Table 2-4). As foreign grant aid and incieased foreign borrowinghave more than covered this deficit, government deposits with the bankingsystem (including SGRF) further increased.
Growth Rates From Year End To Year End
1980 1981 1982 1983
Net Foreign Assets 248.7 106.2 31.6 16.9Net Government Deposits 403.7 116.8 27.7 18.6
37. All other monetary aggregates have increased much more slowly thanforeign assets and government deposits. Credit to the private sector aswell as time and savings deposits expanded by about R.O. 300 million each,money supply by about half as much. Credit to the private sector hasexpanded by an annual average of 18.8 percent during 1977-83, very much inline with the average growth of GDP (about 18 percent) and of imports (19.1percent). However, it grew less rapidly than GDP and imports during theeconomic boom period (1977-80) but faster during the last three years.
1/ Considering that the large foreign deposits and investments of theState General Reserve Fund (SGRF) are as much a part of Oman's netforeign exchange reserves as the foreign deposits of the Central Bankand the commercial banks, this report treats the SGRF as if it werepart of the banking system. Thus, in the monetary statistics, theFund's foreign holdings are including in total net foreign assets aswell as in total government deposits with the banking system. Thisdiffers from the way the IMF presents monetary data in IFS.
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38. Traditionally, well over half of private borrowing was for thefinancing of trade, particularly imports; this changed for the first timein 1983, when the share of trade fell below 48 percent of total borrowingwhile lending to manufacturing, transport and tourism increased sharply(annex table 7.2). Thus, the commercial banks are gradually playing a moreimportant role in the financing of private investments.
39. Money supply (M2) expanded much more slowly than GDP during1977-80 (12 percent p.a. versus 27 percent) but substantially faster thanGDP during the last three years (annual average of 21 percent versus9.5 percent). Money expansion was particularly rapid in 1980 and 1981(annual average of 32 percent); while it slowed down considerably sincethen, it has remained well above GDP growth. Growth of money supply hasbeen related closely to net domestic expenditures of the Government (i.e.domestic expenditures minus non-oil revenues), which have increased morerapidly than GDP over the last few years.
Average Annual Growth
1980-81 1982 1983
Money supply (M2) 32.1% 17.5% 10.4%Net domestic expenditure of the
Government 33.9% 16.4% 12.0%
40. Even though in March 1982 the Central Bank lowered its discountrate from 8-10 percent to 7.25-9.5 percent, real interest rates haveincreased considerably as a result of the sharply reduced domesticinflation. At the same time, nearly 90 percent of all Bank lending was at10 percent interest or more. Considering the estimated 2-6 percent declinein domestic prices in 1983 (para. 21), interest rates have becomesubstantially positive again after the relatively high inflation years1980-1981. 1/
Second Plan Implemer.tation
41. The Second Five-Year Plan (1981-85) envisages public developmentexpenditures of R.O. 2154.7 million. Of this amount, R.O. 1416.7 millionare for civil ministries, R.O. 544 million for the government's share inthe expansion of oil prospecting and production (P.D.O.), R.O. 135 millionfor direct support to the private sector, and R.O. 59 million for indirectsupport of the private scctor, through such financial institutions as ODBand the Bank for Agriculture and Fisheries. The planned investmentallocation presents a well-balanced approach to development, with about 25percent of expenditures for the expansion of hydrocabon production; another25 percent to stimulate diversification into other productive sectors ofthe economy (mining, manufacturing and agriculture/fisheries includingassistance to the private sector); 30 percent for transport,communications, power and water infrastructure; and 20 percent for humaninfrastructure and miscellaneous.
1/ This does not apply to preferential rates and interest subsidies undervarious investment incentive schemes in agriculture and industry(paras. 69 and 79).
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TABLE 2-8: Monetary Statistics(Million RO, end of year)
1977 1978 1979 1980 1981 1982 1983
Foreign assets (net) 62.0 27.8 130.6 455.4 939.2 1,236.2 1,445.7(of which: SGRF) C-) (-) C-) (174.8) (503.1) (702.0) (778.3)Credit to PrivateSector 166.3 198.0 221.8 282.7 334.2 376.0 466.4
Total Assets 228.3 225.8 352.4 738.1 1,273.4 1,612.2 1,912.1
Money 113.3 118.1 124.6 160.1 217.6 255.6 282.3Time and SavingsDeposits 88.4 107.6 118.5 159.1 226.6 299.6 383.0
Government Deposits 7.2 -27.1 63.9 321.9 698.0 891.6 1,057.6
Other Items (net) 19.4 27.2 45.4 97.0 131.2 165.4 189.2
Total Liabilities 228.3 225.8 352.4 738.1 1,273.4 1,612.2 1,912.1
Sources: Central Bank of Oman.
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42. During the first three years, actual Plan implementation has beenslightly ahead of schedule: 59 percent of the funds allocated for civilministries have been spent, while overall expenditures amount to over 67percent of the planned amount (Table 2-9). These aggregate figures,however, conceal wide differences among agencies. Among the major civilministries, Ministry of Post, Telegraph and Telephone, and Ministry ofAgriculture show the lowest ratio of actual Plan implementation, at 28percent and 30 percent respectively. The Ministry of Communications, whichhas the largest budget, has spent less than half (46 percent) of theplanned amount. Ministry of Petroleum and Minerals achieved the highestexpenditure ratio (91.7 percent) among major agencies, followed by Ministryof Electricity and Water (70.0 percent) and Ministry of Health (68.6percent). During the first three years of the Plan, additional projectswhich were not foreseen at the planning stage have also beenimplemented--construction of civil nature carried out by Ministry ofDefense and National Security (R.0. 295.5 million), Sultan QaboosUniversity (R.0. 39.4 million), Olympic Stadium (R.0. 10.7 million), andAl-Bustan Hotel (R.O. 8 million). In consequence, during actualimplementation, priorities have changed quite considerably, compared to thePlan. In particular, the share of directly productive investments was muchlower than foreseen: 19 percent for hydrocarbons and only 17 percent forthe diversification sectors, for a total of 36 percent, as compared to 50percent foreseen in the Plan. Within the diversification sectors, theshares of agriculture and of Government support to the private sector wereparticularly low.
43. This state of Plan implementation raises a number of issues.First, while agriculture/fisheries is regarded -- rightly - as a majorsector to broaden the long term economic potential of the country,implementation of projects and programs in these sectors shows longdelays. There could be many causes for this, such as including projects inthe Plan before they were ready, underestimating the difficulty of carryingout the projects and programs in a complex sector, etc. Second, a largeproportion of development expenditures during 1981-83, R.O. 361.8 millionout of R.O. 1,450 million or 25 percent, were for projects not included inthe Plan. While there is a legitimate need for some flexibility in Planimplementation, particularly when the economic situation changessubstantially, the combination of low rate of implementation in some highpriority sectors and addition of large programs and projects in othersmight suggest some competition for available funds. Whether this is basedon an explicit and well thought out change in priority, is difficult toestablish and may not be favorable especially when a sector such asagriculture is concerned. Third, because some of these "non-planned"projects are conceived and implemented rather quickly, it is unclearwhether they have been prepared carefully enough and are carried out at thelowest possible costs.
44. Data for private investment for the first three years of the Planindicate that private sector investment is on target. (Table 2-10). Morethan half of private investment goes to the oil sector, indicating a highlevel of exploration and development activities. The privately owned oilcompany, Elf-Acquitaine, has been producing from its oil field at Sahmah atthe rate of 10,000 b/d. Private investment in housing continues to growand take close to 29 percent of total private investment. This is in
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TABLE 2-9: Distribution of Development Expenditure(In million of Rials Omani)
Planned Actual Actual as1981-85 1981-83 of Planned
Diwan of H.M. Affairs 40.00 72.20 180.6Governorate of the Capital 2.97 0.28 9.5Ministry of Diwan Affairs 2.50 0.81 32.5Directorate General of Finance 1.65 0.59 35.9Ministry of Foreign Affairs 15.12 5.85 38.7Ministry of Health 35.38 24.27 68.6Ministry of Educationand Youth Affairs 89.92 52.47 58.4
Ministry of Interior 10.19 4.58 45.0Ministry of Communications 346.43 159.34 46.0Ministry of Labor and Social Affairs 127.34 54.78 43.0Ministry of Justice 12.75 0.80 29.8Ministry of Information 18.90 5.81 30.8Ministry of Commerce and Industry 115.38 59.21 51.3Ministry of Agriculture and Fisheries 110.17 33.16 30.1Development Council,Technical Secretariat 1.50 0.75 50.1
DHF, Minister of State andWali of Dhofar 36.75 23.47 63.8
Ministry of Heritage and Culture 18.50 2.51 13.6Ministry of Land Affairsand Municipalities 33.47 17.70 57.7
Musandam Development Committee 33.52 18.60 55.8Ministry of Post, Telegraphand Telephone 66.73 2.70 28.1
Ministry of Electricity and Water 158.29 110.78 70.0Ministry of Petroleum and Minerals 121.60 111.49 91.7Office of DPM Legal Affairs 1.50 - -Water Resources Authority 14.15 2.56 18.1Council for Conservation of Environment 1.00 0.15 15.3National Association of Scouts and Guides 1.00 0.08 8.4Sultan Qaboos University - 39.50State Consultative Council - 1.47Authority for Agricultural Marketing - 0.90Regional Development Committee - 1.00Bustan Hotel - 7.96Olympic Stadium - 10.70Others - 4.80
Sub-total(civil ministries) 1416.71 838.44 59.2
Capital Expenditures of CivilNature, Defense Ministry - 295.50
Government Share in P.D.O. 544.00 268.80 49.4Support to Private Sector 135.00 10.30 7.6Financial Institutions 59.00 37.20 63.1
Total 2154.71 1450.24 67.3
Source: Development Council Technical Secretariat.
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response to continued high level of demand. Unfortunately, privateinvestment in directly productive sectors other than oil remains limited;it averages a low 12.5 percent of total private investment. Most importantis private manufacturing investment while investments in other productivesectors, such as agriculture and fisheries, accounted for a very low 2.7percent of total private investment during 1981-83. A combination ofdelays in Plan implementation in the public sector and relatively lowprivate investment does not seem to augur well for agriculture as a mainalternative to oil (para. 43).
TABLE 2-10: Actual and Projected Private Sector Investment(In millions of Rials Omani)
1981 1982 1983
ActualOil 98.3 125.9 98.0Agriculture 4.6 3.5 5.3Fisheries 0.7 0.9 1.0Manufacturing 19.0 18.2 20.8Housing 57.8 53.0 59.4Trade and tourism 3.4 8.3 8.2Financial institutions 2.7 2.0 3.0
Total 186.5 211.8 195.7
Second Plan Projection 170.0 194.0 224.0
Actual/Projected (Z) 109.7 109.2 87.4
Source: Development Council, Technical Secretariat
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III. MAJOR SECTORAL DEVEIOPMENTS
Oil and Gas
45. The predominance of oil and gas in the Omani economy has alreadybeen touched upon in various parts of this report. To recapitulate, itsvalue-added amounts to almost half of GDP; oil exports account for 99percent of total export earnings; and oil and gas revenues contributedirectly 87 percent of government revenues. With such a weight, thedevelopments in this sector obviously are the key to the health of theeconomy in the short and medium term.
46. Oil was discovered in Central Oman in 1962, development began in1964, and exports started in August 1967. Since then new discoveries havebeen made, additional wells have been gradually added (Table 3-1) and oilhas been virtually the one and only propeller of the economy. The majorprice increases in 1973-74, which more than quadrupled oil revenue fromR.O. 61 mioinn in 1973 to R.C. 292 million in 1974 were the major drivingforce behind the Government's programs to embark on the path of moderneconomic and social development.
TABLE 3-1: Crude Petroleum Production and Producing Wells
Production Producing WellsYear Annual Daily Average (Average
(Million Barrels) (Thousand Barrels) During the Year)
1967 20.9 a/ 57 21(August-December)
1968 87.9 241 391969 119.7 327 581970 121.3 332 631971 107.4 294 791972 102.8 281 1091973 107.0 293 1431974 105.8 290 1501975 124.6 341 2131976 133.8 365 2261977 124.1 340 2451978 114.7 314 2531979 107.7 295 3251980 103.7 282 2891981 b/ 119.8 328 3181982 hI 122.6 336 3651983 bi/ 141.9 389 523
a/ Excludes primary stock of 1.6 million barrels at August 1967.bh Output of Elf Aquitaine is included.
Source: Development Council, Technical Secretariat.
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47. Oman is not a member of the Organization of Petroleum ExportingCountries (OPEC). Its pricing, however, is based on OPEC prices. Notbeing an OPEC member and being only a marginal producer on the worldmarket, Oman's oil production does not come under any internationallyagreed production and export quotas. As a result, it has been able toincrease its production in 1983 by nearly 16 percent at a time when majorOPEC producers had to cut theirs. The increased production was just aboutsufficient to compensate for the loss in revenue as a result of lowerprices.
48. Before 1974, the Government had no equity in the oil concessionsgranted to the operators. Since then a participation agreement had beenreached with the leading operator, Petroleum Development Oman (PDO), andthe Government now owns 60 percent of PDO while Royal Dutch Shell,Compagnie Francaise de Petroles (CFP) and Participation and ExplorationCorporation (Partex) own 34 percent, 4 percent and 2 percent respectively.Until 1980 PDO was the sole oil producer in the country. In November 1980the French national oil company Elf Aquitaine, in partnership with Sumitomoand Wintershall, started production (at 10,000 b/d) from its field inWest-central Oman.
49. Until October 1982, Oman exported all its crude oil and importedrefined products for domestic consumption. As domestic requirementsrapidly increased, (about 9 percent per year since 1979), the Governmentbuilt its own refinery which became operational in November 1982. Therefinery, owned 99 percent by the Government and 1 percent by the CentralBank, has a capacity of 50,000 b/d. However, for lack of domestic demandit has operated at 36,000-38,000 b/d in 1983 and averaged about 45,000 b/din early 1984. Since the refinery can now meet domestic demand, theGovernment has banned most imports of refined products, which are currentlyslightly cheaper. The gove:nment reasons that, although domestic refiningis slightly more costly ttan imports due mainly to small capacity andinitial large investment, the refinery will provide security of supply aswell as much needed training for Omanis in this field. Currently therefinery employs 40 Omanis (out of 152 employees) and provides training for32 more; these 32 will be trained in various phases of refinery operationsfor 2.5-3 years, before becoming regular employees.
50. Output of the refinery (regular and premium gasoline, kerosene anddiesel) 1/ are sold to local distributors, who market them at retaillevel. Prices of these products have been maintained at levels comparableto international prices.
51. As indicated in Table 3-1, crude oil output has fluctuated afterit reached a first peak ef 332.000 b/d in 1970. The decline after 1970was due to technical problems but as new fields were developed, productionagain rose to peak in 1976. As wells aged and became less productive, theoutput again declined until 1980. The Government responded by providingmore incentives for exploration and development; as a result, productionagain rose since 1981. Concurrently the pipeline capacity, which has beena bottleneck, has been undergoing enlargement; by end 1984, the systemwould be able to handle 1,000,000 b/d.
1/ About 47 percent of the refinery's intake is exported as residual at$4-5/barrel below the price of Oman crude.
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52. The Second Fi-e-Year Plan (1981-85) has set a production guidelineof 330,000 b/d. This .aas been exceeded marginally already in 1982 andsubstantially in 1983. The decline in oil prices necessitated thisproduction increase without which revenues would have substantiallydeclined, adversely affecting the Government's economic and socialdevelopment programs. Production in early 1984 averaged about 410,000 b/d(400,000 b/d by PDO and 10,000 b/d by Elf Aquitaine). Government policy isto maintain output close to this level for the next five years, except ifoil prices decline significantly and no other revenues were forthcoming tomaintain the economic and social development programs. In such unlikelycircumstances, production increase over that target may be allowed and istechnically feasible. Presently estimated reserves of about 3.4 billionbarrels would last 23 years at the actual level of output, and about 19years if output were increased to, say 500,000 b/d.
53. As regards future down-stream products, in addition to the presentoil refinery, the government is studying feasibility of another refineryfor heavy crude produced by the fields located in the south. This isseparate from a much larger project based on heavy Saudi crude and domesticgas which has been mentioned in the context of joint industrializationprograms of the Gulf Cooperation council (GCC); as there are some doubtsabout its profitability under the present circumstances. Government is notpursuing it further at this time. As for other downstream projects, suchas petrochemicals, the Government has no plan for investment in suchprojects at the moment.
54. Natural gas, both in association with crude oil and in dry gasreservoirs, is found throughout Oman, often in small quantities. Presentproven reserves are estimated at 7 trillion cubic feet. At presentutilization of about 300 million cubic feet per day, the proven reserveswould last up to 60 years. These reserves are not sufficient for largescale gas exports; in fact, no such exports are contemplated.
55. Besides oil field injection and operations, gas is used mainly forpower generation and desalination in the capital areas and Batinah coast,in the copper mining and smelting in Sohar, in cement production in Rusayl,and in Rusayl Industrial State; very little gas is now being flared. Asmall quantity of Liquefied Petroleum Gas (LPG) from the oil field in Yibaland from the oil refinery in Muscat (1,800 tons/month) is bottled by aprivate company for domestic use - mainly for cooking.
56. Except for supply to the copper mines and smelter which is freeuntil 1985, the gas price is set at 50 percent of oil price at equivalentheat content. At this price, the government indicates that it more thanrecovers its capital and operating costs.
57. The government policy is to encourage further exploration anddevelopment of gas but has not considered gas-based industries such asfertilizer and petrochemicals. Its long-term consideration is to conservegas for domestic use, particularly for oil field operations and powergeneration; as a consequence it hopes that more oil will be left forexport. This policy may of course change should present intensiveexploration result in major discoveries of gas.
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Mining
58. Oman has proven deposits in commercial quantities of only fewminerals - copper, chromite, and gypsum. Exploration is continuing withthe hope to find other minerals such as manganese, coal and asbestos.
59. The most important mine presently in operation is the copper mineand smelter near Sohar, completed in 1983 by the Government-owned OmanMining Company (OMC). The project costs $213 million (with $100 grant fromSaudi Arabia) and has a capacity of 17,000 tons of 99.9 percent pure copperper year. Based on known deposits around the areas where the smelter islocated, the project life is 10-12 years; new discoveries, however areexpected. The copper is being exported until downstream industries startto process it locally. Stimulating downstream industries has in fact beenone of the aims of this copper mining and smelting project and copper wiresand tubes are being studied as downstream possibilities. For the timebeing, however, copper is entirely exported and at current prices, totalforeign exchange earnings average about $25 million per year.
60. Large quantities of chromite have been found. Currently knowndeposits could support a 100,000 ton/year project for 40 years andindications are that more could be found if exploration would expand. Themajor constraint is the limited world market. The Ministry of Petroleumand Minerals has been negotiating with potential buyers, particular China,so as to start exploitation of this potentially profitable mineral.
61. Very large deposits of gypsum have also been found in areas northof Salalah. At the moment only limited quantity of this mineral is beingexploited for cement making. Feasibility studies are being undertaken bythe Ministry of Commerce and Industry to find ways to develop thesedeposits.
62. Government pursues its programs of surveying and geologicalmapping of the country. A chemical laboratory fully equipped with the mostadvanced equipment has also been set up to save time and costs for mineraltesting.
Agriculture
63. Agriculture, which includes crops, livestock, and fisheries, usedto be the backbone of the Omani economy. While the discovery andcommercial production of petroleum since 1967 changed that completely, thesector still has a substantial growth potential that ought to bedeveloped. Agriculture currently accounts for only about 3 percent oftotal GDP or 7 percent of non-oil GDP; but about 30 percent of the Omanipopulation derives part or all of their livelihood from these activities.Oman has not undertaken a comprehensie agricultural census; information isbased on an agricultural sample survey conducted in 1978/79 and fromestimates since then.
64. This sample survey shows that the total areas under cropcultivation are about 41,000 hectares, or considerably less than onepercent of the total land area of the country; the total amount ofcultivable land is not well known. More than two-thirds of the cultivatedareas are under permanent tree crops; such as dates (72 percent), mangoes
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(11 percent), limes (7 percent) and Bananas (7 percent); alfalfa,vegetables and field crops account for most of the rest. Except for a fewfruits, such as dates and limes, subsistence agriculture had always beenthe main feature of this sector. Increased demand - locally as well as inneighboring countries - due to rising income and better transportation andmarkets, have led to emergence of vegetables as an important cash crop inrecent years. Farms are small (average less than one hectare per farm) andscattered around the areas where water sources have been found. About halfof the cultivated areas are concentrated along the northwest coast(Batinah), wnere farm sizes on average are larger.
65. Oman is a net exporter of selected fruits such as dates and limes,but a net importer of other products. In 1982, exports of fresh fruits,vegetables, dates and dry limes amounted to R.O. 2.3 million, mostly toneighboring countries. Imports of fruits and vegetables, however, amountedto R.O. 22.5 million, plus about R.O. 23.7 million of cereals and cerealpreparation. Total agricultural imports, excluding livestock and fisheryproducts, in 1982 were R.O. 62.5 million, compared to R.O. 28.7 million in1978. In volume terms, this comes close to a 24 percent increase peryear. A small proportion (R.O. 1.4 million) was re-exported in 1982.
66. The main coastraint for crop production is lack of water. Limitedamount of annual rainfal'l (100 mm. per year) and of underground waterresources have made expansion of crop acreage difficult. This situation isaggravated by overpumping and salt water intrusion of the agriculturally-rich area along the northeast coast. In addition to water shortage,agricultural activities have been recently hampered by labor shortage,because of the rural-urban migration caused mainly by oil-induced expansionof other economic activities which provide relatively higher wages.
67. In spite of these constraints, there are possibilities co promoteagriculture as a viable alternative to other economic activities; to thisavail, Government has invested in various agricultural projects and hasprovided numerous inceni-ives for the private sector. These include settingup and expanding agricultural research stations and extension servicecenters in various parts of the country; expanding programs to provideimproved seeds, fertilizers, insecticides and agricultural equipment atsubsidized prices; establishing dates collection centers, providing grantsfor Falai maintenance; reclaiming additional agricultural land; setting upan agricultural credit bank; and establishing an agricultural school.Since water is the main constraint, Government has put high priority onprojects that involve water supply and use, including drawing up a masterplan for water use, undertaking research on water conservation and onbuilding water retention dams on various wadis.
68. Livestock production is concentrated mostly in the southern regionwhere relatively more rainfall provides better grazing areas on themountain ranges. The 1978-79 sample survey counted some 1.2 million goats,319 thousand cows, 229 thousand camels, 138 thousand sheep and 43 thousanddonkeys. Most poultry scatters with rural households which keep birds intraditional ways; their number is hard to estimate. Recently modernpoultry farms for broilers started to emerge. Oman imported over R.O. 36.6million worth of livestock products in 1982; this represents an increase ofover 24 percent per year in volume term since 1978. A nominal amount was
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re-exported in 1982. Exports of live goats and sheep to neighboringcountries increased rapidly since 1979 to reach about R.O. 1.1 million in1983, still a small figure in absolute terms.
69. Government has supported development of this sub-sector throughvarious projects and programs, including establishment of research stationsin various part of the country, carrying out research programs in dairyproduction, bee-keeping, poultry farming, and fodder production andgrazing. In addition to a veterinary hospital in the South, Governmentalso established several veterinary centers around the country andquarantine centers on its borders. Programs such as agricultural schooland subsidized credit from the agricultural bank are also accessible tolivestock farmers.
70. Fisheries output has been difficult to estimate because ofscattered and large number of traditional fishermen along the long coastalareas of Oman. Since the beginning of major expansion of oil-inducedeconomic activities in the 1970's, however, it has been estimated that thenumber of traditional fishermen has continuously declined from about 15,000in the early 1970's to about 6,000 at present. Their productivity,however, has increased greatly among others as a result of Governmentinvestments in fishing ports, cold storage and the like. Limited fishingactivity has also been started by modern fishing ccmpanies. Value added inthis sub-sector is estimated to have more than trippled since 1978 incurrent prices and exports increased nearly eight times, albeith from a lowbase. Despite this growth, however, only a small portion of Oman'spotential is utilized at present.
71. Various studies undertaken to estimate the marine resources haveindicated that fish stock on the coastal areas could support a considerablylarger annual catch than what being harvested currently by both traditionalfishermen and modern fishing companies. The major constraints have beeni) traditional fishing methods and equipment which cannot extend beyond
shallow waters a few kilometers off the coast, (ii) a shortage ofentrepreneurs to invest in modern fishing activities, and (iii) inadequatemodern fishing and marketing facilities, including fish landing ports, coldstorage and ice-plants, refrigerated transportation and organized markets.
72. To overcome these constraints, Government has launched a number ofprojects and programs aimed concurrently to benefit traditional fishermenand modern fishing activities. For example, the Government purchases boatsand engines for traditional fishermen, and continues to invests in moderninfrastructure facilities - cold storage, ice making plants, fish markets,fisheries ports, etc. It has also participated in the modern locally-basedfishing company which has proved successful, creating more interest amonglocal entrepreneurs who have now formed two more fishing enterprises tobecome operational in the near future. It has also started a project tobetter ascertain the exploitable marine resources of the country. Thisinvolves a thorough sample survey which is aimed at confirming/refutingwhat is generally believed to be large unexploited national resources.This is obviously a right step before major investments are to be madeeither by the government itself or to induce the private sector in riskingits capital.
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73. Although the Development Plan attaches high priority toagricultural development, and numerous programs and projects have beenlaunched as briefly outlined above, in terms of actual investment,agriculture has not received as large a share of total public sectorinvestment as envisaged in the Second Plan. Table 3-2 shows that thecombined share of agriculture and fisheries for the first three years ofthe Second Plan (1.3 percent) is lower than the level of the First Plan(1.5 percent). This has happened despite the Second Five-Year Planallocation of 3.8 percent of public investment to agriculture andfisheries. Only if investment in irrigation and water resource development(not all for agricultural purposes but much for domestic water supply) wereincluded, would the combined share of this sector during 1981-83 show someincrease over the level of the First Plan. Even under this measurement,there is a large shortfall of actual investment vis-a-vis the 1981-85target.
TABLE 3-2: Shares of Agriculture and Fisheries inPublic Sector Investment
(In millions of Rials Omani)
Actual Planned1976-80 1981-83 1981-85
Total public investment 1203.6 1448.2 2155.0
Agriculture 12.6 16.2 51.9(% of total) (1.0) (1.1) (2.4)
Fisheries 5.7 3.6 30.4° of total) (0.5) (0.2) (1.4)
Irrigation and water resources 4.2 17.9 56.0(% of total) (0.3) (1.2) (2.6)
Source: Development Council Technical Secretariate
Non-Petroleum Manufacturing Sector
74. Until a decade ago, the manufacturing sector consisted exclusivelyof small-scale handicraft establishments, notably weaving, pottery, silverand goldsmith, khanjar (dagger) making, and boat-building. As economicactivities started to expand rapidly in the mid-1970's, new industries wereintroduced gradually - soft drink bottling, furniture making, dairyprocessing, grain milling, cement block making, etc. Subsequently largerand heavier industries started to emerge, such as cement plants and coppersmelter. As a result the value-added in this sector has increased veryrapidly over the past few years from about R.O. 4.3 million in 1976 to R.O.63.2 million in 1983, of which R.O. 41.2 million was attributed to thenon-petroleum manufacturing sector.
75. Despite rapid introduction of new industries and rapid growth, thesector remains very small, accounting for only about 2.3 percent of GDP, orless than 5 percent of non-oil GDP in 1983. The still limited importance
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of manufacturing results partly from the sheer dominance of the petroleumsector and partly from two other factors: (i) The decline of thehandicraft i.dustries which is caused by the fact that as the economy beganmodernization, imports began to replace them; in addition, as jobs in othersectors became more attractive, workers abandoned traditional employment;and (ii) strong competition for private investments by the highprofitability of sectors such as trade and real estate. During 1975-82,981 new companies registered in the manufacturing sector. Most were verysmall; about 94 percent have a registered capital of under R.0. 50 thousand(Table 3-3); only five have a registered capital of over R.O. 1 million.
TABLE 3-3: Structure of Manufacturing EstablishmentsRegistered during 1975-82
Registered Capital Number of Firms(Thousand R.0.)
2 to under 5 2305 to under 10 25110 to under 25 37725 to under 50 6550 to under 100 20100 to under 250 25250 to under 500 4500 to under 1,000 41,000 to under 2,000 32,000 to under 3,000 -3,000 to under 4,000 14,000 to under 5,000 -5,000 and over 1
Total 981
Source: Development Council Technical Secretariat
76. To diversify the economy away from oil, the Omani government haslaunched numerous programs and projects to stimulate investment inmanufacturing. They could be divided into three major groups, which,however, are not mutually exclusive.: (i) preserving and promotingindigenous handicraft industries; (ii) providing incentives to stimulateprivate investment; and (iii) increasing direct government participation inmanufacturing activities.
77. The programs to promote indigenous handicraft industries arecarried out both by the Ministry of National Heritage and by the Ministryof Commerce and Industry. For example, to preserve local textile weavingand pottery, the Ministry of National Heritage has set up a number ofhandicraft development centers and helps market their products. TheMinistry of Commerce and Industry has built a pottery factory, equippedwith improved machinery such as potter's wheels. The Ministry of CulturalHeritage has set up a small workshop in the once boat-building center of
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Sur to produce model boats, and subsidizes the salaries of carpenters andassistants employed in the workshop.
78. The investmenL incentives are numerous. These include exemptionftom import duties for equipment and raw materials, selected tariffprotection up to 20 percent (import tariffs in general are very low,usually 5 percent), a five-year tax holiday renewable for additional fiveyears, assistance in feasibility studies, provision of infrastructure andfinancial assistance in the form of grants and concessional loans. TheRusayl Industrial Estate, located in the vicinity of the Muscatmetropolitan area, has been under implementation for some time, the firstphase covering an area of about 40 hectares was completed in early 1983 andsome factories have started operating there. Work on the second phase isexpected to be completed by mid-1985. Three more such industrial estatesare under consideration, including one in Sur and another in the South.
79. Financial assistance to private enterpreneurs is channeled throughthe Ministry of Commerce and Industry and through the Oman Development Bank(ODB). The Ministry administers a R.O. 113 million fund allocated by thebudget for the Second Plan (1981-85) which provides interest-free loans andgrants to private entrepreneurs. It can provide grants up to 25 percent ofpaid-up capital to projects outside the capital area, as well asconcessional loans up to 100 percent of paid in capital to enterpriseslocated in the capital area and up to 115 percent of paid in capital tothose outside the capital area; loans are interest-free, with maturity of20 years and grace period of 5 years. The ODB, established in 1979 and 40percent owned by the government, makes medium- and long-term loans to andparticipates in equity of industrial enterprises. It lends at 9 percentinterest, which is slightly below the maximum legal ceiling of 11.5percent, up to 10 year maturity and 1 year grace. Projects located outsidethe capital area receive an interest subsidy of 4 percentage points fromthe government. By end 1983, the ODB had granted loans totalling R.O. 24.3million, to 121 projects with the total cost of R.O. 63 million; it hasalso provided about R.O. 1 million in equity.
80. Government has participated quite extensively in major industrialprojects. Some of these have been highly successful and have been partlysold to the private sector, for example the Oman Flour Mill. Other majorgovernment projects are one of the two cement plants (624,000 tons/year)with R.O. 58.5 million investment, and the copper mining and smelting plant(17,000 tons/years) with R.O. 71 million investment. The Government alsoowns and participates in smaller projects such as the existing two dateprocessing plants and the smaller cement project (240,000 tons/year)located in the south.
81. For the Second Plan (1981-85) period, Government has planned toinvest directly R.O. 81.8 million in manufacturing. At the end of 1983,R.O. 67.3 million or 82 percent had been spent. Private sector investmentswere projected at R.O. 235 million for five years. During the first threeyears, however, only R.O 58 million were actually invested or less than 25percent of the total. Obviously at this rate, the target of the SecondPlan will not be achieved. In this sense, the incentives provided by
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Government have not been sufficient to bring about the desired level ofprivate investment. One reason for this lag is the fact that entrepreneursremain reluctant to invest in manufacturing as long as trade and realestate allows them to achieve more profits more rapidly. At the same time,as the most obvious import substitution projects are exhausted, furtherinvestments will have to be more sophisticated and increasingly moreexport-oriented and are, thus, will be more difficult.
82. Two other constraints for rapid expansion in manufacturing arelack of labor and domestic raw materials. Manufacturing growth has so fardepended heavily on expatriate labor. Except for oil related projects,cement, and dates packing, most manufacturing depends on imported rawmaterials. At the end of 1982, there were more than 8,000 expatriatesworking in the manufacturing sector. Lack of census data makes itdifficult to estimate the number of Omanis employed in this sector. Inmost modern establishments, however, the majority of employees arenon-Omanis. For example, in the government-owned cement plant employing225 people, only 52 are Omanis; of 152 employed in the refinery, only 32are Omanis. During 1980-82, the government commissioned 19 feasibilitystudies for new manufacturing projects in the pxivate sector; all assumedthat labor would have to be brought in from outside. This indicates anaccepted notion that expatriates will continue to be the main source ofmanpower.
83. The future expansion of manufacturing, thus, inevitably raises thequestion of labor and employment, i.e. how fast can the Omani labor forcebe expanded in manufacturing, and/or how much more expatriate labor doesthe country want to accept. At present, the major part of the value-addedis provided by expatriate laborers, who transfer a large part of theirincomes abroad; the financial profits Oman can reap from rapid expansion ofmanufacturing are limited. In the medium and long term, however, thesituation will be quite different and the sector will have to expand toprovide employment and income to the rapidly increasing domestic laborforce. In consequence, the Government ought to continue its efforts tostimulate private manufacturing investments, inter alia, through providingassistance to small enterprises in the traditional sector, many of whichmight have to potential to expand gradually into the modern sector.
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IV. DEVELOPMENT PROSPECTS AND ISSUES
General Considerations
84. Oman achieved very rapid economic and socia; development over thepast decade thanks to the availability of a large pooL of financialresources generated by rapid increases in oil prices and some increases inoil production. It remains, however, largely a one-product economy, inwhich oil contributes over half of income and most of government revenuesand foreign exchange. The prospects for short-and medium-term economicgrowth depends, therefore, largely on developments in the oil sector.
85. Until recently, running out of oil in the near future was a majorconcern, but new discoveries have increased exploitable oil reserves to alevel that would allow present production to continue for at least 23years. Furthermore as mentioned earlier, before the end of 1984, Oman willhave the technical capacity to step-up oil production substantially; giventhe small absolute size of its production in the world market, it shouldnot encounter serious problems in selling such an increase in output. Inthe short and medium term, therefore, Oman could finance easily substantialincreases in public expenditures (recurrent and investments) and in importsin line with the trend experienced since 1980, through a correspondingexpansion in oil production and exports. Thus, the fundamental issuefacing Omani policy makers today is not one of immediate financialconstraints but one of the optimal long term use of limited non-renewableoil resources. The question is not whether foreign exchange earnings canor can not be increased in the short term (they could) but whether theyshould be increased and what consequences this would have on the country'slong term economic growth prospects.
86. Such a fundamental question can only be decided at the highestpolitical level. This has been done implicitly in the Second Five-YearPlan, which had set a production guideline of 330,000 b/d thereby clearlyindicating the Government's preference to restrict present production infavor of more long term economic growth. While actual oil production hassince exceeded Plan targets by over 25 percent, partially due to unforseenprice declines, the Covernment has stated that its basic policy has notchanged, and that considerations of long term development still receivepriority over more rapid short term growth. Given Oman's limited resourceendownment this is a wise decision. Human resources being by far its mostimportant economic resource in the long term, and given the considerablelead time necessary to develop these resources fully, Oman has very goodreasons to follow a long term development strategy, stretching out itslimited oil resources over as long a period as possible. But withoutcurtailing growth in its expenditure program, Oman will soon have to decidewhether to increase oil output substantially beyond the current level.
87. Based on these considerations the following macroeconomicprojections assume either no future increase in oil production at all, i.e.production level of 400,000 b/d (assumption 1), an increase to 450,000 b/dby 1986 with no further increase thereafter (assumption 2), or an increaseto 500,000 b/d by 1988 with no further increase (assumption 3) althoughthis production is above the level planned by the Government. Theirpurpose is to demonstrate how the economy could develop within theseconstraints, with particular emphasis on public recurrent expenditures and
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investments. The projections are based on an oil price increasing innominal terms to $48.6 per barrel in 1992 as projected by the World Bank inearly 1985. 1/
88. With public expenditures (recurrent and investments) plustransfers abroad of workers' salaries and of private company profitsaveraging 75 percent of GNP in 1982-1983, and increasing rapidly, Oman'sbalance of payments outlook depends crucially on future growth of thesevariables. There can be little doubt that continuing rapid growth of thesefactors in line with recent trends would not allow Government to maintainoil production at or near present levels; it would lead soon to seriouspressure on the balance of payments which in turn would force Government toincrease oil exports quite substantially.
89. In consequenee, all three projection scenarios are based on theassumption that Government will be successful in reducing growth of publicexpenditures and of workers' remittances. Specifically it is assumed thatrecurrent expenditures would not increase by more than 3.8 perc-at per yearin real terms, or about 10 percent in current prices. This could beachieved, for instance, by having civilian current expenditures grow at 15percent in current prices (8.5 percent in real terms) in line with pasttrends, while growth of defense expenditures are kept constant in realterms (6 percent increase in current prices.). Furthermore, publicinvestments are projected to grow slightly slower than GDP, and the overallinvestment, while growing, is projected to fall marginally in relation toGDP from 26.5 to 25 percent; this relative decline should be possible nowthat most major transportation and communication facilities are in place.
90. Equally important are efforts to slow down the very rapid increasein transfers abroad of workers' salaries (less so of profits by privatecompanies) experienced since 1981. This is clearly demonstrated by themarked increase in the past five years of the ratio of incremental growthin non-oil GDP over incremental growth in workers' and foreign contractors'remittances (except profit remittances by PDO's foreign partners) (Table4-1). In 1979 and 1980, this ratio averaged 13-15 percent; it reached apeak of nearly 60 percent in 1982, and declined to 28.6 percent in 1983,still very high compared to the late 1970s. If this trend continues, alarger and larger share of the increase in non-oil GDP will be exclusivelyfor the benefit of expatriates who will remit most of it abroad. At thesame time, expatriates continue to consume scarse domestic resources, inparticular water.
91. As discussed in para. 19, economic growth has brought rapid influxof expatriate workers over the past decade and workers' remittances haveincreased accordingly, at an elasticity of 1.21 vis-a-vis total GDP in thepast five-years (para. 33). While it was necessary to bring in these
1/ These projections are essentially as follows: No price increases incurrent dollar during 1984-86; price increases average 9.1 percent perannum during 1987-90 and 10.2 percent per annum during 1991-95. Inconstant dollar, these projections imply a decline of about 12 percentduring 1984-86, an increase of about 1 percent annually during 1987-90,and 4.8 percent annually during 1991-95.
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workers to achieve transformation of the economy and provide the requiredsocial services, the issue for the future is at what point would Oman beable to sustain satisfactory economic growth and social development withoutadditional expatriate labor and then begin to replace expatriates withOmanis, allowing the number of expatriates to gradually decline.
TABLE 4-1: Relation of Growth in Remittances and Non-oil GDP(In million Rial Omani)
1977 1978 1979 1980 1981 1982 1983
Workers' remittances a/ 85.0 83.3 97.2 125.0 168.8 251.1 288.8Contractors' remittances 36.1 27.5 27.3 32.1 73.1 84.8 97.1
Total 121.6 110.8 124.5 157.1 241.9 335.9 385.9
Annual Increase (R) -9.3 13.7 32.6 84.8 94.0 50.0
Non-oil GDP 416.1 464.1 571.7 787.9 1,029.3 1,187.4 1,362.3Annual Increase (C) 48.0 107.7 216.2 241.4 158.1 174.9
R/C (Z) neg. 12.7 15.1 35.1 59.5 28.6
a/ Gross outflows; includes remittances by oil sector workers, whorepresent only a small proportion of the total, however.
Source: Mission calculations.
92. The three projection scenarios assume -- maybe optimistically--that workers' remittances will grow in the future much more slowly thanthat in the past, not exceeding growth of total GDP; and this for severalreasons: (i) as a result of the impressive education effort of the lastdecade, an increasing number of well trained young Omanis will soon jointhe labor force; (ii) if Government recurrent expenditures will indeedexpand less rapidly than before, as assumed above, a smaller number ofyoung Omanis will be able to join the civil service and the defense forces,and more will look for employment in the private sector, which itself isprojected to expand less rapidly than in the past; (iii) the projectedslight decline in the overall investment rate ought to slow down somewhatthe growth in construction activities, a sector were expatriate labor wasparticularly important.
The Three Proiection Scenarios
93. Under Scenario 1, with oil output of 400,000 old, GDP can grow atabout 3 percent per year in real terms provided that growth potential inother sectors is realized: 5 percent for agriculture and services, and8.5 percent for the non-oil industrial sector. With many majorinfrastructural and industrial projects completed, but with socialinfrastructure such as housing and health facilities still expanding at a
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high rate, such growth could require an investment level of about 25percent of GDP. Consumption which grew about twice as rapidly as GDP inthe past, has a momentum to continue its growth, perhaps at a slightlylower rate than before. Assuming as mentioned above that growth ofgovernment non-defense expenditures can be limited to 15 percent in nominalterms and defense expenditures to the rate of inflation only, totalgovernment consumption would grow only slightly faster than total GDP.Growth of private consumption (5.7 percent in real terms) is projected toslow down only slightly from past trends (from 18 to about 12 percent innominal terms). The results of this projection is summarized in Table 4-2,Scenario 1.
94. Under this growth and expenditure scenario the surplus of theresource balance declines drastically following the same trend as during1980-83 1/; the surplus would decline from 11 percent of GDP in 1983 tounder 3 percent in the early 1990s. With continued growth in workers'remittances, the current account of the balance of payments would show alarge deficit of about 13 percent of GDP by 1990-1992. National savingsavailable for investment would decline from about 26 percent of GDP to lessthan 13 percent on average in 1990-92, and nearly 46 percent of investmentswould have to be financed by external sources. Assuming (a) that foreigngrant aid will remain at the 1983 level in nominal term to average about1.0 percent of GDP in 1990-1992, (b) that foreign private capital inflowwill gradually increase to about $180 million by the early 1990s, and (c)that the remainder of the gap would have to be covered by borrowings atcommercial terms, net borrowings would have to average close to 12 percentof GDP in the late 1980s and early 1990s (Table 4-3) to allow reserves togrow slightly from $4.2 billion (over 12 months of imports in 1983) to $5.2billion (about 7 months of imports) by 1992. As a result, the debt serviceburden would quickly rise, probably reach as high as 23 percent of exportsby 1992 (Table 4-4) and increase rapidly thereafter. This is a dangerouslyhigh level, suggesting that the growth rates of public consumption andinvestments as discussed above cannot be sustained at this level of oilproduction.
95. Scenario 2 assumes an oil output increasing 25,000 b/d every yearuntil it reaches 450,000 b/d by 1986 and remains at that level thereafter.With a similar set of assumptions as above, projections are summarizedunder Scenario 2 in Tables 4-2, 4-3 and 4-4. Overall GDP growth obviouslywould be slightly faster (3.4 percent per year). The balance of paymentswill turn into deficit, with the current account deficit averaging 7.6percent of GDP in 1987-89 increasing to 8.7 percent of GDP by 1990-1992.By 1990-1992, as much as 30 percent of investment would have to be financedfrom abroad, causing the debt burden to continuously increase. Assumingagain that (a) foreign aid would remain stable in nominal terms at about$150 million per year, (b) foreign private capital inflow would averageabout $180 million by 1990, and (c) the remainder of the gap be covered bycommercial borrowing, net foreign borrowing would still increase to over 7percent of GDP by 1990-1992 (Table 4-3). As a result, the debt serviceratio would rise to over 13 percent by 1992 and increase rapidlythereafter. This scenario, while not sustainable in the longer-term, would
1/ We assume that import elasticity with respect to GDP for goods is 0.9in line with past trends and that for services is 1.0.
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TABLE 4-2: Resource Balances Under Alternative Oil Production(In Percent)
Share of GDP Annual Growth Rate1983 1984-86 1987-89 1990-92 1983-92
(A ia1) (Pro3ectionT (1983Prixces)
Scenario 1: Oil production at 400,000 b/d
CDP 100.0 100.0 100.0 100.0 3.0MU6 66.2 -r9i -7Z.1 Z
(32.6) (33.3) (33.3) (34.4) 3.8.(Private) (29.3) (32.9) (35.9) (37.7) 6.0
Investment 27.0 25.0 25.0 25.0 2.1Resource balance a/ 11.1 8.8 5.8 2.9 14.2Net factor iocome -12.2 :12.2 -13.2 -15.0 5.7GNP 87.8 87.8 86.8 85.0 2.7Domestic savings 38.1 33.8 30.8 27.9 -0.6National savings 25.9 21.6 17.6 12.9 -5.7
Memo item: GDP in millionRO (average incurrent prices) 2741 2983 4048 5426
Scenario 2: Oil production increases to 450,000 b/d by 1986
GDP 100.0 100.0 100.0 100.0 3.4Consumption 61.9 "W3 -77 " qDI 4.9(Public) (32.6) (32.3) (31.7) (32.9) 3.8(Private) (29.3) (32.2) (34.0) (35.9) 6.0
Investment 27.0 25.0 25.0 25.0 2.6Resource balance a! 11.1 10.5 9.3 6.2 -3.8Net factor income -12.2 -12.0 -12.5 -13.7 5.0GNP 87.8 88.0 87.5 86.3 3.3Domestic savings 38.1 35.5 34.3 31.2 1.0National savings 25.9 23.5 21.8 17.5 1.4
Memo item: GDP in millionRO (average incurrent prices) 2741 3074 4253 5674
Scenario 3: Oil production increases to 500,000 b/d by 1988
GDP 100.0 100.0 100.0 100.0 3.9Consumption 61.9 64.5 63.1 65.7 4.9(Public) (32.6) (32.3) (30.4) (31.4) 3.8(Private) (29.3) (32.2) (32.7) (34.3) 6.0
Investment 27.0 25.0 25.0 25.0 3.1Resource balance a/ 11.1 10.5 11.9 9.3 1.4Net factor income -12.2 -12.0 -12.3 -12.8 4.7GNP 87.8 88.0 87.7 87.2 3.8Domestic savings 38.1 35.5 36.9 34.3 2.6National savings 25.9 23.5 24.6 21.5 1.5
Memo item: GDP in millionRO (average incurrent prices) 2741 3074 4427 5930
a/ Bglance of foreign trade and non-factor services.Source: Mission projections.
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TABLE 4-3: Financing of Investments Under Alternative Oil Production(In percent of GDP)
1983 1984-86 1987-89 1990-92(Actual) (Projection)
Scenario 1: Oil production at 400,000 b/d
National savings a/ 25.7 19.1 13.6 11.8Foreign grants 1.8 1.8 1.3 1.0Foreign direct investment 2.4 1.4 1.2 L.1Net foreign borrowing 4.4 4.1 9.8 11.9
Total financing 34.3 26.4 25.9 25.8Total investment 26.5 25.0 25.0 25.0Balance of payments surplus 7.8 1.4 0.9 0.8
Scenario 2: Oil production increases to 450,000 b/d by 1986
National savings a/ 25.7 21.0 17.4 16.3Foreign grants 1.8 1.7 1.2 0.9Foreign direct investment 2.4 1.3 1.2 1.1Net foreign borrowing 4.4 2.4 6.0 7.4
Total financing 34.3 26.4 2.5.8 25.7Total investment 26.5 25.0 25.0 25.0Balance of payments surplus 7.8 1.4 0.8 0.7
Scenario 3: Oil production increases to 500,000 b/d by 1988
National savings a/ 25.7 21.0 20.0 20.1Foreign grants 1.8 1.7 1.2 0.9Foreign direct investment 2.4 1.3 1.1 1.0Net foreign borrowing 4.4 2.4 3.6 3.7
Total financing 34.3 26.4 25.9 25.7Total investment 26.5 25.0 25.0 25.0Balance of payments surplus 7.8 1.4 0.9 0.7
a/ National savings rates here are lower than those shown in Table 4-2 due tothe loss in terms of trade which was not reflected in Table 4-2 becausethose rates are calculated using constant price data.
Source: Mission projections.
- 39 -
TABLE 4-4: Balance of Payments and Public Savings ProspectsUnder Alternative Oil Production
(In Milli-.n Rials Omani at current prices)
1983 1984 1986 1988 1990 1992
Scenario 1: Oil output at 400,000 b/d
Balance of Payments a/ -31 -53 -305 -446 -672 -761Public Savings b/ 518 428 96 25 -95 -260Debt Service Ratio (X) 3.2 6.6 8.4 10.6 14.8 23.2
Scenario 2: Oil Output at 450,000 b/d by 1986
Balance of Payments a/ -31 -53 -206 -318 -487 -502Public Savings b/ 518 428 238 196 145 53Debt Service Ratio (X) 3.2 6.6 7.3 7.9 8.9 13.3
Sc-nario 3: Oil output increases to 500,000 b/d by 1988
Balance of Payments a/ -31 - 53 -206 -201 -319 -261Public Savings b/ 518 428 238 367 370 351Debt Service Ration (%) 3.2 6.6 7.3 6.9 6.6 8.2
a/ Current account balance, including the balance of foreign trade andnon-factor services and net current transfers.
b/ Government's share in PDO operations included.
Source: Mission projections.
- 40 -
allow the Government time to make adjustments in its expenditure programsgradually, without causing immediate severe economic disruptions. Ifslower growth of expenditures can be achieved, say by the late 1980s, oiloutput at 450,000 b/d appears to be sufficient.
96. Scenario 3 assumes an oil output increaing 25,000 b/d every yearuntil it reaches 500,000 b/d by 1988 and remains at that level thereafter.With a similar set of assumptions as-above, projections are summarized inTables 4-2, 4-3 and 4-4. Overall GDP growth rate would be 3.9 percent peryear. Although the current account of the balance of payments will alsoremain in deficit, it would be limited to about 5 percent of GDP by 1990-92and gradually declining (in terms of share in GDP) thereafter. Only about14 percent of investment would have to be financed from abroad, keeping thedebt burden much more manageable, with net foreign borrowing stabilizing ataround 3.6-3.7 percent of GDP by late 1980s and early 1990s, and the debtservice ratio increasing to only 8.2 percent by 1992. This, clearly, is asustainable scenario. With such an oil output, however, the presentlyknown oil reserves would not last more than 19 years. But to support theexpenditure programs as outlined about, this appears to be the minimumsustainable level of output required.
97. In conclusion, the three projection scenarios demonstrate clearlythat a substantial slow-down in the growth of public expenditures andworkers' transfers is crucial to attain the Government's goal ofmaintaining oil production near present levels. Continuation of the highgrowth trends of the last few years would force Government to raise oilproduction substantially within shortly, resulting in a correspondingshortening of the time period during which Oman can count on substantialoil revenues. Even under optimistic assumptions, however, i.e., a markedslow-down in the growth of public outlays and workers' remittances, oilproduction most likely will have to be stepped-up from the present le-el ofabout 400,000 b/d to 500,000 bld by the late 1980s. The 500,000 b/dproduction level of course represents a more than 50 percent increase overthe 330,000 b/d production target set for the Second Five Year Plarn, andthus would appear to represent a major change in the development strategyof stretching out the known oil reserves into the future as much aspossible.
98. The Government, therefore, is faced with the options ofsubstantially increasing oil output or drastically slowing down thedevelopment program well below the levels projected above; the latter wouldcertainly involve cutting down on investment as well as currentexpenditures, keeping in mind that the high amount of recent investmentsalmost necessarily will require substantial increases in operatingexpenditures to use and maintain them properly. In case demand for oilcontinues to be weak and export prices turn out to be substantially lowerthan the levels used for the above projections, the issue of increased oilproduction vis-a-vis reduced expenditures become even more urgent. Underthese circumstances, it may now be the time for Oman to re-evaluate itslong-term development strategy and options that will lead to achievement ofdevelopment objectives. Such an evaluation would inevitably involve thelevel of oil production, the investment program, the sectors and projectsto receive priority financing, the manpower requirements, expatriate labor,training of Omanis, and its implication on Government expenditures. Itshould be ready for incorporation in the next development plan due to belaunched in 1986.
- 41 -
STATISTICAL APPENDIXList of Tables
Table Number
Standard Tables1. National Accounts Summary2. National Account Summary (at 1978 prices)3. Balance of Payments
Section 1: Employment and Population1.1 Population1.2 Government Employment by Nationality1.3 Labor Cards issued to Non-Omani Workers in the Private Sector
Section 2: National Accounts2.1 Oman Industrial Origin of Gross Domestic Product
Section 3: External Trade3.1 Trade Balance3.2 Non-oil Exports3.3 Classification of Recorded Imports by Economic Use3.4 Trends in Economic Use of Imports3.5 Imports
Section 4: External Debt4.1 External Public Debt
Section 5: Public Finance5.1 Oman Government Finance5.2 Oman Government Revenue5.3 Government Current Expenditures5.4 Distribution of Gross Fixed Capital Formation by Type of Economic
Activity 1976-1983
Section 6: Prices
6.1 Capital Area Consumer Price Index of Food, Beverages and Tobacco6.2 Weighted Price Index of Construction Materials
Section 7: Monetary Sector7.1 Maturity Pattern of Interest Bearing Deposits7.2 Distribution of Commercial Bank Credit
Section 8:8.1 Oman Production of Crude oil, Export and Exploration Activities8.2 Average Posted Price of Crude Oil Export8.3 Oil Reserves8.4 Direction of Oil Exports
0555S
- 42 -
STANDARD TABLES
Sources and Methods
Data come mainly from Development Council Technical Secretariat,which compiles national income accounts, trade and the balance of payments.Some of these data are available only in aggregate form, and constant priceseries are not available. It is necessary, therefore, to make assumptions toderive disaggregated series and constant price series. All data are providedin local currency. They are converted to US$ by the official exchange ratewhich remains constant for the past decade; no non-official market currencytrading is reported.
National Income accounts from the supply side is available in detail;from the demand side, exports and imports are available in net form only.Data from the balance of payments are, therefore, used. Investment isavailable in aggregate form, without separate entries for stock changes.Government consumption is available; private consumption is residuallyestimated.
Exports of goods are provided in f.o.b. form; imports of goods are inc.i.f.; and n.f.s. trade is provided in net form. Some adjustments are madeto derive required series. Since over 99 percent of exports is oil, and Omanhas no tanker or merchant marine fleet and large insurance services, it isassumed that earnings from exports of services are negligible. Imports ofgoods (f.o.b.) are from the IFS. Imports of n.f.s. are derived from c.i.f.data, plus net n.f.s. trade, minus imports of goods (f.o.b.). Currenttransfers include workers' remittances while N< data are from Bank ExternalDebt Reporting System.
Major assumptions are necessary to derive constant price seriesbecause price data are limited; only price indexes for food, beverages andtobacco and for construction materials are available. GDP deflator is derivedas follows: for oil sector GDP, average prices of oil exports are used; fornon-oil GDP, the price index used is a simple average of these indexes -those of food, beverages and tobacco, of construction materials, and of unitvalue of manufactured exports from developed to developing countries (MUV)issued by the Bank. The oil and non-oil components are then weighted toderive GDP deflator. Deflator for investment is a simple average of priceindices of construction materials and the MUV. Import deflator is MUV andexport deflator is export price of oil. Deflator for total expenditures isderived from deflators above and used for consumption as well.
- 43 -
Table 1: OMANNATIONAL ACCOUNTS SUMARY
(Millions of Rial Omani at Current Prices)
1978 1979 1980 1981 1982 1983 1L
1. Gross Domestic Product 947.5 1289.5 2066.6 2506.4 2509.7 2741.3
2. Resource Gap (N-X) -90.8 -262.4 -534.8 -586.1 -326.2 -313.33. Imports (g+nfs) 461.1 524.7 75,.9 1035.9 1201.6 1160.84. Exports (g+nfs) 551.9 787.5 1294.6 1622.0 1527.8 1474.0
S. Total Expenditures 856.7 1027.1 1531.8 1920.3 2283.5 2428.0
6. Consumption 583.2 691.7 1071.2 1344.7 1589.5 1702.47. General Government 272.3 354.7 499.2 656.4 715.2 779.88. Private 310.9 337.0 572.0 688.3 874.3 922.6
9. Investment 273.5 335.4 460.6 57S.6 694.0 725.610. Fixed Investment 273.5 335.4 460.6 575.6 694.0 725.611. Changes in Stocks na na na na na na
12. Domestic Saving 364.3 S97.8 995.4 1161.7 1020.2 1038.913. Net Factor Income -38.2 -51.3 -37.8 -25.1 18.9 -60.714. Current Transfers -73.2 -86.0 -112.3 -154.7 -236.3 -273.8
15. National Saving 252.9 460.5 84S.3 981.9 802.8 704.4
Exchange Rates:
16. Rial Omani per US$ .3454 .3454 .3454 .3454 .3454 .345417. Rial Omani per SDR .4500 4550 4405 .4020 .3810 .3810
.. Preliminary.
- 44 -
Table 2: OMANATIONAL ACCOUITS SUMARY
(Millions of USS at Constant 1978 Prices)
1979 1979 1980 1951 1982 1932 1/
1. Gross Domestic Product 2771.0 2885.4 3196.6 3870.0 4422.7 4996.32. Terms of Trade Effect 0.0 568.0 1774.5 2418.4 2238.0 2035.53. Gross Domestic Income 2771.0 3453.4 4971.1 6288.4 6660.7 7031.8
4. Resource Gap (5-6) -262-9 -681.5 -1281.4 -1476.6 -837.0 -800.5S. Imports (g.nfs) 1335.0 1361.3 1821.4 2605.7 3084.0 3070.26. Capacity to Import 1597.9 2042.8 3102.8 4082.3 3921.0 3870.77. Exports (g4nfs) 1597.9 1474.8 1328.3 1663.9 1683.0 1835.2
8. Total Expenditures 2508.1 2771.9 3689.7 4811.8 5823.7 6231.3
9. Consumption 1694.6 1921.8 2572.3 3501.3 4083.6 5216.310. General Governent 984.4 1040.7 1440.8 1908.1 2186.9 2879.211. Private 710.2 881.1 1131.5 1593.2 1896.7 2337.1
12. Investment 813.5 850.1 1117.4 1310.5 1740.1 1015.013. Fixed Investment 813.5 850.1 1117.4 1310.5 1740.1 1015.014. Changes in Stocks - - - - - -
15. Domestic Saving 1076.4 1531.6 2398.8 2787.1 2577.1 1815.516. Net Factor Incae -110.0 -138.7 -90.8 -62.5 48.4 -159.917. Current Transfers -211.9 -231.6 -271.3 -389.0 -602.2 721.3
18. National Saving 754.5 1161.3 2036.7 2335.6 2023.3 934.3
Deflators (1978=100)
19. Cre:: Domc:tic Product 100.0 129.5 126.5 187.2 170.7 157.620. Imports (genfs) 100.0 111.6 120.8 115.1 112.8 109.921. Exports (genfs) 100.0 154.6 282.2 282.4 262.8 231.822. Total Expenditures 100.0 107.5 119.9 115.3 113.6 94.223. Govermment Consumption 100.0 107.5 119.9 115.3 113.6 94.224. Private Consumption 100.0 107.5 119.9 115.3 113.6 94.2iS. Fixed Investment 100.0 108.3 120.3 125.9 118.0 112.626. Changes in Stocks - - - - -
27. Exchange Rate Index 100.0 100.0 100.0 100.0 100.0 100.0(US Dollars per Rials)
]J Prel iWnary.
- 45 -
Table 3: OHMANBALANCE OF PAYMENTS
(Millions of USS at Current Prices)
1978 1979 1980 1981 1982 1983 1/
1. Exports (ginfs) 1S98 2280 3748 4696 4423 42542. Merchandise (fob) 1598 2280 3748 4696 4423 42543. Mon-factor Services
4. Iqports (g+nfs) 1335 iSl9 2200 2999 3479 3374S. Merchandise (Fob) 1157 1285 1871 2576 2833 30166. Non-factor Services 178 234 329 423 646 358
7. Resource Balance 263 761 1548 1697 944 880
8. Net Factor Income -110 -149 -109 -72 55 -1769. Factor Receipts 5 1 103 264 420 450
10. Factor Payments 115 150 212 336 365 62611. (M#LT Interest Paid) -- 23 40 34 34 52
12. Net Current Transfers -212 -249 -325 -448 -684 -79313. Transfer Receipts 29 33 36 41 43 4714. Transfer Payments 241 281 362 489 727 746
15. Current Balance -S9 363 1114 1177 315 -89
K'LT Capital Inflow
16. Direct Investment 27 76 85 74 134 188
17. Capital Grant Aid 20 179 102 145 42 147
18. Net M+LT Loan (ORS) -36 33 -60 113 203 41519. Oi=burscment e4 219 97 199 2S7 50620. Repayments 120 186 157 86 84 91
21. Other M+LT (net) 8 73 63 48 -137
22. Net Credit from IMF -- 4 3 -- 3 --
23. Disbursements -- 4 3 -- 3 --
24. Repayments -- -- -- -- -- --
25. Net Short-term Capital -- -- -- -- --
26. Capital Flow NIE 18 -50 -8 -47 -1 -63
27. Errors and Omissions -79 -235 -363 -117 290 8
28. Change in Met Reserves 101 -297 -936 -1393 -849 -606(- indicates increase)
V Preliminary.
- 46 -
Table 1.1: POPULATION OF OMAN(mid-year estimate)
PopulationYear '~~~~000
1972 7001973 7201974 7401975 7661976 7901977 8101978 8401979 8601980 8901981 9191982 1.047 1/
Source: United Nations Demographic Yearbook. 1981
I/ World Bank. EPDCA.
- 47 -
Table 1.2: GOVERNNENT EMPLOYMENT BY NATIONALITY. 1970-82 jY
Expatriatesas Percentage
Year Total Nationals Expatriates of Total
1970 1750 1630 120 6.9
1973 9073 7403 1670 18.4
1976 22311 15668 6643 29.8
1977 26765 17269 9496 35.5
1978 30424 18466 11958 39.3
1979 35030 21216 13814 39.4
1980 38840 23445 15395 39.6
1981 43751 26886 16865 38.5
1982 49809 29647 20162 40.5
1983 54877 33543 21334 38.9
Source: Development Council. Technical Secretariat. Statistical Yearbook 1982
.1/ Up to 1978: Excludes employees of Police. Defense. Central Bank of Omanand Omantel
1979: Excludes employees of Police and Defence. but includingemployees of Port Scrvice Authority
1980-1983: Excludes employees of Defence. Police. GeneralTelecomunications Organization and Central Bank of Oman.
- 48 -
Table 1.3: LABOUR CARDS ISSUED 1/ TO NON-OMANI WORKERSIN THE PRIVATE SECTOR
Number of Labour Cards Percentage of the TotalEgonomic Activity 1980 1981 1982 1983 1980 1981 1982 1983Agriculture & Fishing 4655 6988 6583 8921 3.51 4.26 3.52 3.79
Mining & Quarrying 2272 2682 3426 3399 1.71 1.64 1.83 1.44
Manufacturing 3876 8096 8034 9477 2.92 4.94 4.30 4.02
Electricity. Gas S Water 723 478 423 19S O.SS 0.29 0.23 0.08
Construction 33393 48532 46279 59022 25.18 29.60 24.77 25.05
Wholesale & Retail Trade 43693 23692 31703 37171 32.94 14.45 16.97 15.77
Construction & Trade 26548 49407 66611 89793 20.02 30.14 35.66 38.11Combined 3/
Restaurants 8 Hotels 1518 1843 2037 3017 1.14 1.12 1.09 1.28
Transport. Storage & 2852 2258 2483 2545 2.15 1.38 1.33 1.08Conuunications
Financing. Insurance. 3033 2485 3272 3753 2.29 1.52 1.75 1.59Real Estate & BusinessServices
Conunity. Social Z 2060 8088 8139 10606 1.55 4.93 4.35 4.50Personal Services
More than one activity 3678 9066 7345 7478 2.77 5.53 3.93 3.17
Activity not stated 4317 319 486 268 3.26 0.19 0.26 0.11
Total - All activities 132618 I/ 163934 186821 235645 100.00 100.OD 100.00 100.00
Source: Development Council. Technical Secretariat. Statistical Yearbook 1982.
I/ By Directorate General of Labor Affairs?/ These establishments are engaged in both Trade and Constructioni/ Includes 2023 duplicate cards for which breakup is not available
- 49 -
Table 2.1: OMAN INOUSTRIAL ORIGIN OF GROSS DOMESTIC PRODUCT(Millions of Rials Omani)
Economic Activity 1976 1977 1978 1979 1980 1981 1982 1983
Agriculture. Livestock 18.3 24.1 30.7 40.3 52.6 62.1 66.1 80.5and Fishing
Mining and Quarrying 517.5 532.8 493.8 719.7 1285.9 1495.5 1424.7 1384.6
- Crude Petroleum 517.5 532.8 491.1 712.7 1272.6 1475.2 1402.0 1353.3- Natural Gas - - 1.9 6.2 12.3 17.7 18.9 25.8- Others - - 0.8 0.8 1.0 2.6 3.8 S.S
Manufacturing 4.3 6.7 8.5 9.6 13.4 24.0 35.9 63.2
- Oil Refining - - - - - - - 21.5- Others 4.3 6.7 8.5 9.6 13.4 24.0 35.9 41.7
Electricity & Water 6.4 9.2 11.1 12.7 16.0 18.7 21.3 24.0
Construction 88.5 78.0 71.4 86.1 117.8 144.9 169.8 187.4
Wholesale & Retail 76.5 94.2 104.0 137.1 188.3 251.3 299.5 315.7Trade and Restaurantsand Hotels
Transport. Conmunica- 13.5 17.6 20.7 25.5 38.3 53.8 64.9 72.9tion & Storage
Financial Institutions 11.2 13.8 14.4 22.6 34.4 49.0 61.8 69.3and Insurance
RCal E:tatc P Businc:z °0.° 02.4 °S.7 100.4 123.2 157.4 169.2 1°6.2Services
Comnunity. Social 4.4 5.8 7.6 9.6 13.0 16.9 20.7 25.4& Personal Services
Less - Imputed Bank -10.9 -12.9 -14.2 -19.0 -24.6 -39.0 -43.9 -49.6Service Charges
Public Administration - - 88.6 109.4 153.0 206.1 234.5 280.9and Defense
Other Government 69.3 1/ 90.5 j/ 20.6 28.5 41.6 54.4 70.5 79.1Services
Gross Domestic Product 879.8 942.2 942.9 1282.5 2058.0 2495.0 2595.0 2719.6
at Factor Cost
Import Duties 4.5 4.6 4.6 7.0 8.6 11.3 14.7 21.7
Gross Domestic Product 884.3 946.8 747.5 1289.5 2066.6 2506.4 2609.7 2741.3
1/ Include Public Administration and Defense.
Source: Development Council. Technical Secretariat
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Table 3.1: TRADE BALANCE(Millions of Rials Omani)
1978 1979 19880 1981 1982 1983 I/
Exports 552.0 787.4 1294.5 1621.9 1526.8 1467.3
all 521.8 745.7 1244.6 1526.4 1409.6 1346.6Non-Oil 30.2 41.7 49.9 95.5 117.2 120.7of which Reexports 26.9 37.0 45.3 89.0 109.S 110.0
Imports 438.3 493.2 713.3 940.3 1087.1 1041.7of which Recorded 327.2 430.5 598.2 790.3 926.5 860.9
Trade Balance (Surplus) 113.7 294.2 581.3 681.6 440.6 427.6
Source: Central Bank of Oman Annual Report. 1982.
1/ Development Council. Technical Secretariat
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Table 3.2: NON-OIL EXPORTS(Millions of Rials Omani)
1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983
Dried Dates 0.1 0.1 0.2 0.1 0.1 0.4 0.6 0.2 0.3 0.4 0.2Dried Limes 0.3 0.3 0.6 1.3 1.0 1.5 1.5 0.8 2.3 1.5 0.6Flour 0.0 0.0 0.0 0.0 0.3 0.8 0.8 1.0 0.8 0.9 0.7Fish 0.0 0.0 0.0 0.0 0.1 OS 1.4 2.0 2.6 3.7 4.4Other 0.2 0.0 0.3 0.0 0.G 0. 0.0 0.0 C.s 1.3 4.8
Total Non-Oil 0.6 0.4 1.1 1.4 1.S 3.3 4.3 4.0 6.5 7.7 10.7Exports
Source: Oevelopment Council Technical Secretariat.
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Table 3.3: CLASSIFICATION OF RECORDED IMPORTS BY ECONOMIC USE(Millions of Rials Omant)
Class of Goods 1978 1979 1980 1931 1982
Consufer Goods 159.7 199.2 275.7 362.4 40'.2(48.8) (46.3) (44.8) (4S.9) (43.6)
Intermediate Goods 93.8 121.6 149.1 233.7 277.0(28.7) (28.2) (24.2) (29.5) (29.9)
Capital Goods 71.8 99.7 155.8 172.1 216.7(21.9) (23.2) (25.3) (21.8) (23.4)
Unclassified 2.0 10.0 34.8 22.2 29.2(0.6) (7.4) (5.7) (2.8) (3.1)
Total 327.2 430.5 615.4 790.3 927.1(100.0) (100.0) (100.0) (100.0) (1C.O0)
Source: Central Bank of Oman Annual Report. 1982
- 53 -
Table 3.4: TRENDS IN ECOONOIC USE OF IMPORTS(1978=100)
Class of Goods 1978 1979 1980 1981 1982
Consuner Goods 100 125 173 227 253
Intermediate Goods 100 130 159 249 195
Capital Goods 100 139 217 240 302
Source: Central Bank of Dian. Annual Report 1982.
- 54 -
Table 3.S: RECORDED IMPORTS(Millions of Rials Omani)
1973 1974 1975 1,,76 1977 1978 1978 1980 1981 1982 1983
Food & Live Animals 9.7 15.0 Z6.8 30.4 38.1 42.4 56.3 72.9 84.7 100.1 107.1Tobacco & Beverages 0.8 1.6 3.1 4.8 6.3 711S 18.8 14.8 19.4 14.9 16.3Crude Materials 0.8 2.8 5.6 s.9 6.4 4.8 5.1 9.9 11.4 13.3 12.6Fuels & Lubricants 1.8 S.1 10.8 17.2 21.5 27.5 30.0 64.6 103.3 96.7 14.1Oils & Fats 0.2 0.7 0.9 1.2 2.0 3.1 2.9 3.2 2.6 2.3 3.0Chemicals 1.8 S.0 9.0 9.4 11.1 13.6 16.3 20.8 27.4 28.8 31.6Manufactured Goods 8.0 29.6 48.5 47.7 53.8 58.6 68.2 96.3 146.2 182.1 166.8Machinery & Equipment 12.6 53.7 95.8 102.1 123.6 125.9 171.4 235.7 312.6 390.1 396.1Other Manufactures 2.9 11.1 18.3 22.5 29.4 32.0 32.3 45.1 57.0 69.6 82.2Unclassified 2.1 11.1 45.5 9.3 9.9 7.6 33.1 34.8 25.5 28.6 30.8
Total Recorded Imports 40.7 135.6 264.3 250.5 302.1 327.2 430.5 598.2 790.3 926.5 860.9
Source: Development Council. Technical Secretariat
Table 4.1: TOTAL EXTERNAL PUBLIC DEBT(in millions of US Dollars)
1975 1976 1977 197X 1979 1930 1931 1982 1933 1934 I/
Debt outstanding at beginning of period
Disbursed only 175.7 287.4 435.2 559.2 554.1 603.1 450.5 543.1 729.7 1,126.0Including undisbursed 353.1 588.5 837.5 870.6 998.2 742.6 943.5 921.9 1,390.4 1,680.7
Transaction during poriad
Comttment 278.3 305.6 51.4 193.7 9.7 464.3 101.9 592.7 415.4 -Disbursment 142.2 191.8 161.3 64.2 2l6.5 96.7 198.5 287.0 506.2' 291.2Total Service Payment 27.6 40.0 87.0 140.7 208.8 197.0 120.0 117.7 143.1 274.9
Principal 21.1 30.0 61.8 120.5 185.5 156.8 85.9 84.1 90.6 177.6Interest 6.5 10.0 25.1 20.2 23.3 40.2 34.4 33.6 52.5 97.3
Other changes
Cancellations - - - - 96.4 101.9 0.4 6.8 2.1 -Adjustment 1/ -21.8 -26.6 43.5 54.4 16.6 5.3 -37.2 -33.3 32.4
Source: World Bank, External Debt Reporting System in
1/ Mostly changes in exchange rates and transfer of debts from one category to another.2/ Projected
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Table 5.1: OMAN GOVERNMENT FINANCE. 1978-1983 1/(Millions of Rials Omani)
ctual 19831978 1979 1980 1981 1982 8udget
Revenue Z/ 509.0 754.2 958.8 1312.2 1190.1 1320.2
Oil Receipts 458.0 635.1 831.6 1125.9 1057.3 1181.1Other Revenues 44.0 57.2 92.0 136.3 118.1 129.1of which: Tax Revenue 2/ (11.1) (13.1) (14.8) (22.6) (27.0) (34.2)
Grants 7.0 61.9 35.2 50.0 14.7 10.0
Expenditure 560.2 650.4 924.7 1174.3 1364.4 1553.8
Current 437.5 457.3 678.1 856.9 969.2 1056.8Defence J (265-0) (269.0) (406.8) (S21.9) (581.3) (611.8)Civil (154.5) (164.3) (235.9) (288.0) (332.2) (383.0)PDO Operations i/ (18.0) (24.0) (35.4) (47.0) (55.7) (62.0)
Capital 122.7 193.1 246.7 317.4 395.2 497.0Civil (88.9) (129.5) (168.9) (241.0) (289.0) (362.0)PDO Capital 5/ (33.8) (63.6) (77.8) (76.4) (106.2) (135.0)
Met Lending and EquityParticipation f/ -19.7 -15.9 -28.8 -49.5 -47.5 -61.0
Dooestic -18.4 -6.2 -25.1 -54.7 -28.5 -21.0Foreign -1.3 -9.7 -3.7 5.2 -19.0 -30.0Surplus or Deficit -70.9 87.9 5.3 88.4 -221.8 -294.6
Financing 70.9 -87.9 -5.3 -88.4 221.8 294.6
Domestic Rial OmaniDeposits (net) Z/ 34.5 -91.2 -28.5 -10.0 63.3Central Bank (50.2) (-51.5) (-16.1) (15.9) (38.8)Commercial Banks (-15.7) (-39.7) (-12.4) (-25.9) (24.5)
Drawings on Foreign Loans (net) A/ -8.2 -3.8 4.7 50.0 41.7Government Foreign Currency Reserves - - 18.5 -128.4 116.8
Source: Central Bank of Oman Annual Report. 1982.
1J/ Varies from text Table 2-4 due to definitional differences.2/ From 1980. revenues exclude transfers ard allocations to the State General ReserveFund.2/ Customs duties. Corporate income tax, and municipal tax.J/ Includes defence and police capital expenditures.I/ Sixty percent of POO operating and capital expenditures are funded by the Government.f/ Net outlays denoted by a minus sign./ Net use of deposits (or net borrowing) denoted by positive sign.1/ Corresponds to balance of payments accounts.
Table 5.2: OMAN GOVERNMENT REVENUE, 1973-1983(Millions of Rials Omani)
1973 1974 1978 1976 1977 1978 1979 1980 1981 1982 1983
Oil Revenue 1/ 61.3 291.5 373.1 454.7 482.2 458.0 635.1 831.6 1125.9 1057.3 1181.1
Royalty and Income Tax 60.6 159.3 126.5 178.8 158.9 140.0 194.7 225.7 372.7 332.8 363.3Sale of Goverment Oil to POO 0.0 116.4 196.0 199.4 197.5 188.3 214.4 187.2 196.7 189.9 186.4Third Party Sales 0.0 15.3 50.3 76.1 125.4 129.3 225.5 418.3 556.0 534.0 630.9Oil Installation Port Dues 0.7 0.5 0.3 0.4 0.4 0.4 0.5 0.4 0.5 0.6 0.5
Other Revenue 3.7 11.7 14.6 32.7 38.0 44.0 57.2 92.0 136.3 118.1 129.1
Gas Receipts - - - - - - 3.5 14.0 18.1 18.9 16.6Custom Duties 1.7 2.3 0.5 4.5 4.6 4.6 7.0 7.8 11.3 14.7 23.4Corporate Income Tax 0.7 0.5 2.1 4.6 5.9 6.0 5.6 6.S 10.5 11.4 10.0Interest Earnings 0.4 4.3 1.7 2.4 4.5 5.7 6.7 19.2 38.6 14.3 14.7Municipal Taxes 0.3 0.5 1.2 0.1 0.3 0.5 0.5 0.5 0.8 0.9 0.8Income from Public Servicesand Utilities 0.0 1.1 3.9 6.4 7.2 6.5 17.4 15.5 21.4 23.9 33.8
Other 0.5 3.0 5.2 14.6 15.5 20.7 16.5 28.5 35.6 34.0 29.8
Total 65.0 303.2 387.7 487.4 520.2 502.0 692.3 923.6 1262.2 1175.4 1310.2
Grants from Other Countries 3.5 8.3 71.6 18.0 92.7 7.0 61.9 35.2 50.0 14.7 10.0
Total Government Revenue 68.5 311.5 459.4 505.4 612.9 509.0 754.2 958.8 1312.2 1190.1 1320.2
Li'
Source: Central Bank of Oman Annual Report, 1982.
1/ Excludes appropriations for the General Reserve Fund
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Table 5.3: GOVERNMENT CURRENT EXPENDITURES. 1978-1983(Millions of Rials Omani)
1978 1979 1980 1981 1982 1983
Defense and National Security 201.1 246.4 347.7 450.0 497.9 530.4
Civil 138.1 144.5 214.8 272.5 315.7 362.7
Diwan of His Majesty for Protocol 29.1 24.1 32.7 37.1 43.7 44.0
Agriculture and Fisheries 5.6 5.7 7.6 9.0 9.9 10.1
Petroleum and Minerals 0.8 1.7 2.2 2.7 4.1 3.8
Comnerce and Industry 0.7 0.9 1.7 2.3 2.5 2.6
Education 18.7 21.9 31.8 44.6 55.1 66.0
Coanunications 7.1 8.9 12.2 14.0 16.1 17.3
Health 12.1 14.4 19.1 25.4 30.6 _3.6
Finance 1.4 1.4 1.9 2.4 2.6 11.8
Foreign Affairs 5.5 6.1 7.5 8.3 9.7 9.1
Dhofar Province 11.4 6.8 9.2 10.3 11.8 12.5
Electricity and Water 17.3 21.0 33.0 42.2 46.8 55.1
Information and Youth Affairs 7.2 7.3 8.9 10.9 9.7 10.7
Heritage and Culture O.S 1.0 1.5 1.6 1.6 1.6
Others 20.7 23.3 45.5 61.7 71.5 54.5
Interest on Loans 1C.2 19.7 21.1 15.5 17.5 19.2Oil Company Operations 18.b 24.1 35.3 47.1 55.7 58.7
Total 374.0 434.7 618.9 785.1 886.8 971.0
Source: Development Council Technical Secretariat.
Table 5.4: DISTRIBUTION OF GROSS FIXED CAPITAL FORMATION BY TYPE OF ECONOMIC ACTIVITY 1976 - 1983
Year 1976 1977 1978 1979Sectors Public Private Total Public Private Total Public Private Total Public Private Total
A. Goods Producina Sectors:
1. a. P.D.O. Development Expenditure 14.0 10.5 24.5 15.5 12.6 28.1 33.7 22.3 56.0 63.7 34.6 98.3b. Other Oil Projects - 5.6 5.6 - 9.0 9.0 - 10.6 10.6 - 19.1 19.1
2. Natural Gas 0.3 - 0.3 9.0 - 9.0 4.4 - 4.4 2.2 - 2.23. Mining and Quarrying 0.3 0.3 0.6 0.3 0.4 0.7 0.9 0.5 1.4 0.4 0.1 0.54. Agriculture 0.5 0.8 1.3 1.6 1.1 2.7 2.9 1.6 1.5 3.6 3.1 6.75. Fishing 1.4 0.4 1.8 0.3 0.5 0.8 0.7 0.6 1.3 1.4 0.6 2.06. Manufacturina - 9.5 9.5 - 14.4 14.4 - 14.1 14.1 0.2 15.4 15.67. Total 11 to 6) 16.5 27.1 43.6 26.7 38.0 64.7 42.6 49.7 92.3 71.5 72.9 144.4
B. Services Sectors:
8. Housing 6.6 26.6 33.2 4.5 28.3 32.8 5.6 33.0 38.6 7.7 42.7 50.49. Trade & Tourism 8.9 1.6 10.5 5.3 2.3 7.6 0.5 2.7 3.2 0.1 2.0 2.110. Electricity 32.3 - 32.3 25.8 - 25.8 12.7 - 12.7 12.3 - 12.311. Water 4.7 - 4.7 5.5 - 5.5 4.7 - 4.7 7.4 - 7.412. Post, Telegraph & Telephone 2.8 - 2.8 2.2 - 2.2 5.2 - 5.2 3.4 - 3.413, Financial Institutions - 2.0 2.0 - 2.0 2.0 - 2.0 2.0 - 2.1 2.114. Total (8 to 131 55.3 30.2 85.5 43.3 32.6 75.9 28.7 37.7 66.4 30.9 46.8 77.7
C. -Infrastructure:
15. Irrigation & Water Resources 0.2 - 0.2 0.1 - 0.1 0.7 - 0.7 1.2 - 1.216. Roads 43.1 - 43.1 36.4 - 36.4 18.0 - 18.0 49.4 - 49.417. Ports 7.8 - 7.8 9.8 - 9.8 8.1 - 8.1 8.3 - 8.318. Airports 4.2 - 4.2 5.3 - 5.3 2.6 - 2.6 5.0 5.019. Town Planning & Municipal Services 8.9 - 8.9 2.6 - 2.6 2.8 - 2.8 7.2 - 7.220. Education 2.9 - 2.9 7.9 - 7.9 6.5 - 6.5 4.2 - 4.221. Vocational Training 0.1 - 0.1 - - - 0.7 - 0.7 3.7 - 3.722. Health 8.6 - 8.6 2.3 - 2.3 3.8 - 3.8 3.3 - 3.323. Information & Culture
& Religious Service 2.2 - 2.2 2.2 - 2.2 4.0 - 4.0 2.1 - 2.124. Social Services - - - 0.5 - 0.5 0.6 - 0.6 1.2 - 1.225. Government Administration 110.0 - 110.0 81.8 - 81.8 67.0 - 67.0 27.7 - 27.7
26. Total l15 to 251 188.0 - 188.0 148.9 - 148.9 114,8 - 114.8 113.3 - 113.327. Total (7*14+26) 259.8 57.3 317.1 218.0 70.6 289.5 186.1 87.4 273.5 215.7 119.7 335.4
rble 5.4: DISTRIBUTION OF GROSS FIXED CAPITAL FORMATION BY TYPE OF ECONOMIC ACTIVITY 1976 - 1983 (continued)
Year 1980 1981 19B2 1983Public Private Total Public Private Total Public Private Total Public Private Total
A. Goods ProduCing Sectors :
1. a. P.0.O. Development Expenditure 77.8 52.0 129.8 76.4 48.6 125.0 106.2 70.8 177.0 86.4 61.0 147.4b. Other Oil ProJects - 21.0 21.0 0.3 49.7 50.0 0.6 55.1 55.7 0.4 37.0 37.4
2. Natural Gas 4.8 - 4.8 7.5 - 7.5 1.1 - 1.1 5.1 - 5.13. Mining and Quarrying 9.8 - 9.8 20.3 - 20.3 26.6 - 26.6 11.7 - 11.74. Agriculture 4.3 3.5 7.8 5.2 4.6 9.8 6.0 3.5 9.5 5.0 5.3 10.35. Fishing 1.9 0.7 2.6 1.3 0.7 2.0 1.2 0.9 2.1 1.1 1.0 2.1_ 6. Manufacturing 6.7 15.7 22.4 31.2 19.0 50.2 25.6 18.2 43.8 10.5 20.8 31.3_ 7. Total 11 to 6) 105.3 92.9 198.2 142.2 122.5 264.8 167.3 148.5 315.8 120.2 125.1 245.3
9. Serxices Sectos:
8. Housing 3.8 56.4 60.2 4.2 57.8 62.0 20.4 53.0 73.4 25.6 59.4 85.09. Trade & Tourism 0.4 2.5 2.9 7.4 3.4 10.8 8.9 8.3 17.2 25.5 8.2 33.710. Electricity 19.5 - 19.5 19.6 - 19.6 35.0 - 35.0 34.4 - 34.411. Water 5.4 - 5.4 13.1 - 13.1 16.0 - 16.0 14.0 - 14.012. Post, Telegraph & Telephone 2.4 - 2.4 1.5 - 1.5 4.4 - 4.4 14.0 - 14.013. Financial Institutions - 3.0 3.0 - 2.7 2.7 - 2.0 2.0 - 3.0 3.014. Total (8 to 13) 31.5 61.9 93.4 45.8 63.9 109.7 84.7 63.3 148.0 113.5 70.6 184.1
C. InfrastrUctwC:
15. Irrigation & Water Resources 1.7 - 1.7 6.2 - 5.2 6.5 - 6.5 6.2 - 6.216. Roads 45.8 - 45.8 66.8 - 66.8 44.0 - 44.0 42.7 - 42.717. Ports 9.2 - 9.2 3.5 - 3.5 6.1 - 6.1 4.0 - 4.018. Airports 5.2 - 5.2 2.2 - 2.2 1.4 - 1.4 1.4 - 1.4 119. Town Planning & Municipal Services 17.2 - 17.2 19.1 - 19.1 16.7 - 16.7 14.8 - 14.8 0%20. Education 5.4 - 5.4 9.4 - 9.4 35.6 - 35.6 29.3 - 29.3 021. Vocational Training 3.2 - 3.2 2.7 - 2.7 6.0 - 6.0 7.6 - 7.622. Health 4.1 - 4.1 5.9 - 5.9 5.9 - 5.9 11.9 - 11.923. Information & Culture
& Religious Services 5.9 - 5.9 3.1 - 3.1 9.8 - 9.8 13.3 - 13.324. Social Services 1.9 - 1.9 2.1 - 2.1 2.1 - 2.1 3.4 - 3.425. Government Administration 69.4 - 69.4 81.1 - 81.1 96.1 - 96.1 161.6 - 161.6
26. Total (15 to 25) 169.0 - 169.0 201.1 - 201.1 230.2 - 230.2 296.2 - 296.227. Total (7014+26) 305.8 154.8 460.6 389.1 186.5 575.6 482.2 211.8 694.0 529.9 195.7 725.6
- 61 -
Table 6.1: CAPITAL AREA CONSUMER PRICE INDEXOF FOOD. BEVERAGES & TOBACCO
(Base Average Prices - July-December 1978 = 100.0)
1981 1982 1983 1982-81 1983-82Itm= of ConsuLwtlon Weiaht December December December X Change. Change
Cereal Products 15.2 112.4 115.5 113.2 2.C -2.0Meat & Eggs 20.6 1;1.4 132.8 120.0 1.1 -9.6Fish 6.1 124.3 127.9 128.8 2.9 0.7tilk Products 10.3 128.1 131.0 124.3 2.3 -5.1Fruits & Nuts 12.4 120.4 118.0 114.8 -2.0 -2.7Vegetables 11.9 106.8 109.7 96.3 2.7 -12.2Sugar & Confectionery 4.5 163.9 134.6 129.7 -17.9 -3.6Spices b Salt 1.6 117.7 108.2 111.4 -8.1 3.0Edible Oils and Fats 3.3 124.0 124.5 134.3 0.4 7.9Tea & Coffee 4.8 94.1 91.9 84.1 -2.3 -8.5Beverages (Non-alcoholic) 3.4 132.9 152.1 141.9 14.4 -6.7Other Food Preparations 2.7 121.6 114.7 106.6 -5.7 -7.1Tobacco Products 3.2 138.7 170.0 204.5 22.6 20.3
Combined Index 100.0 122.7 124.0 118.6 1.1 -4.4
Source: Development Council Technical Secretariat
- 62 -
Table 6.2: WEIGHTED PRICE INDEX OF CONSTRUCTION MATERIALS(March 1974 = 100)
1979 1980 1981 1982 1983
End of Year 122.5 138.4 147.1 127.7 119.8 1J
Average Prices 177.3 133.2 146.3 131.3 na
Source: Central Bank Annual Report. 1982
lf Estimate based on data from Development Council. Technical Secretariat.
- 63 -
Table 7.1: MATURITY PATTERN OF INTEREST BEARING DEPOSITS(Private Sectors, Goverment and Banks - 31st December 1982)
Interest Rate (% P.A.)No. of Amount in Max min Most Freq. _1/
Period of Maturity A/Cs 000's RO x Z
7 days and less 598 72777 8.8 6.0 8.2(0.30) (13.95)
7 days and less than one month 852 42385 9.8 8.2 9.2(0.43) (8.13)
Between one and three months 4123 193766 10.5 8.6 9.4(2.07) (37.14)
Between 3 and 6 months 1631 61889 10.9 9.2 9.3(0.82) (11.86)
Between 6 and 9 months 683 25806 12.3 11.1 11.4(0.34) (4.95)
Between 9 and 12 months 4964 34595 11.3 10.6 10.7(2.50) (6.63)
More than one year 278 12773 10.7 8.2 9.9(0.14) (2.45)
Savings Deposits 185791 77669 5.6 5.1 5.1193.40) (14.89)
All Deposits 198919 521660(100.00) (100.00)
Source: Central Bank of Oman Annual Report. 1982.
Note: Figures in brackets are percentages to totals.
J/ Average of reported rates under each sub head.
- 64 -
Table 7.2: DISTRIBUTION OF COMMERCIAL BANK CREDIT
Outstanding Ants In Million R.O. Percentage to TotalEnd of Year 197A 1979 1980 1981 1982 197B 1979 1980 1981 19S2
Trade 109.7 117.6 156.3 190.2 214.5 48.7 50.0 53.1 S4.9 52.8Mining 1.1 3.5 2.8 3.7 9.4 0.5 1.5 1.0 1.1 2.3Construction 30.2 3S.7 55.3 55.9 65.4 13.4 152 18.8 16.1 16.1Manufacturing 5.7 4.5 5.4 5.1 6.1 2.S 1.9 1.8 1.5 1.SServtces 6.6 5.] 6.1 5.4 11.9 2.9 2.1 2.1 1.6 2.9Personal Loans 35.0 31.0 37.0 51.8 62.8 15.6 13.2 12.6 1S.0 15.5Goverrnent 18.0 4.7 4.1 1.1 4.5 8.0 2.0 1.4 0.3 1.1Others 18.8 33.1 27.1 33.2 31.9 8.4 14.1 9.2 9.5 7.8
Total 225.1 23S.2 294.1 346.4 406.5 100.0 100.0 100.0 100.0 100.0
Source: Central Bank of Onan Annual Report. 1982.
- 65 -
Table 8.I: OHMAN PRODUCTION OF CRUOE OIL. EXPORTS ANDEXPLORATION ACTIVITIES
1973 1974 1975 1976 -1977 1973 1979 1980 1981 1i 1982 1/ 1983 1/
Cumulative Number 143.0 150.0 213.0 226-0 245.0 253.0 325.0 289.0 318.0 365.0 523.0of Wells Producing
Productton(thousand BBL/day) 293.0 290.0 341.0 365.0 340.0 314.0 295.0 282.0 328.0 336.0 389.0(miAlton BBL/year) 107.0 105.8 124.6 133.8 124.3 114.7 107.7 103.7 119.8 122.6 141.9
Exports(million BBL/year) 106.9 105.8 124.8 134.3 122.6 115.6 107.5 102.0 120.0 118-S 128.6
Source: Development Council. Technical Secretariat.
]/ Elf Aquitaine is included.
- 66 -
T abla 8-2: AVERAGE POSTED PRtCE OF CRUDE OIL EXPORTS 1/(US Dollars per Barrel)
Year SPrice
1967 1.8201971 2.2341972 2.5061973 3.3331974 12.2981975 12.3501976 12.5371977 12.9571978 13.0681979 19.9981980 36.8991981 36.8271982 34.3591983 29.166 Z/
Source: Development Council. Technical Secretariat.
1/ 1978-1983. Export weighted annual averages.
- 67 -
Tabl 8.3: OIL RESERVES
(in million barrels)
1-1-1981 1-1-1982 1-1-1983 1-1-1984
2484 2899 2982 3438
Source: Development Council, Technical Secretariat.
- 68 -
Tabkj a.4: DIRECTION OF OIL EXPORTS(Percentage of Total)
1978 1979 1980 1981 1982 1983
Europe 21.4 18.4 26.1 25.8 16.9 9.7Holland 6.3 7.0 10.8 11.2 6.5 2.2
Asta 56.9 63.7 65.3 63.4 64.6 76.3Japan 56.9 63.7 50.5 S1.S 39.8 49.6Singapore 0.0 0.0 10.9 8.9 21.7 12.1
merica 21.7 16.1 6.6 8.8 7.1 8.2USA 15.8 13.1 3.0 7.6 5.5 8.2
Rest 0.0 1.8 2.0 2.0 11.4 5.8
Total 100.0 100.0 100.0 100.0 100.0 100.0
Source: Central Bank of Onmn. Annual Report, 1982.
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