Additional funds: Oil windfalls help fuel public and private sector growth

Text size +-

With a well-capitalised banking system and minimal exposure to European debt, the Omani economy is progressing relatively unscathed by the economic gloom prevailing elsewhere. Thanks to a surplus in the first half of 2012, the sultanate has managed to roll out significant counter-cyclical spending measures while keeping its budget in order. Immediately at the start of 2012 Darwish bin Ismail Al Balushi, the minister responsible for financial affairs, announced that the government would raise spending for the current five-year plan, which ends in 2015, to OR54bn ($140.7bn), a 25% increase on the original figure of OR43bn ($112.1bn). The additional spending will be directed towards funding social security, unemployment benefit expansion and investments in job creation.

Eye On The Prize

Along with providing employment and economic activity in the short term, more spending could provide significant returns on investment in the long run. Government investments will fund a series of large-scale projects, including a railway network, airports and sea ports, and education and civil services investments. Combined with higher oil prices, government spending is set to sustain Oman’s economic growth into the medium term, according to the IMF.

This recent loosening of the treasury’s purse strings is not a new phenomenon but the result of a gradual ramp up. Following the global economic downturn in 2009, Oman’s economy bounced back quickly, with growth supported by higher spending initiatives from the government. During the 2011 Arab Spring, social unrest and protests triggered by regional events and unemployment swept through MENA.

In common with several other countries, Omani authorities announced increased social spending and state benefits. The government introduced new unemployment benefits, raised the private sector minimum wage for nationals from OR140 ($365) to OR200 ($521) per month and increased the number of public sector jobs on offer from 164,000 to 208,000. In 2012 the public payroll was set to add an additional 36,000 positions, according to the annual budget. Meanwhile, the government’s role in the economy expanded; total funds for private sector subsidies and participation grew between 2010 and 2011, from OR471.4m ($1.2bn) to OR1.7bn ($4.4bn), according to data from the Ministry of Finance.

Rising Revenues

Changes in oil prices offered a well-timed boost in state revenues during this period of higher spending. Between 2010 and 2011, government oil revenues grew by more than 70%, from OR5.47bn ($14.3bn) to OR9.66bn ($25.2bn), according to data from the Ministry of Finance. Gas revenues also saw an increase of 26% from OR930m ($2.4bn) to OR1.17bn ($3bn). In total, revenues rose by nearly 60% from OR7.8bn ($20.3bn) to OR12.5bn ($32.6bn).

Growth in its key sources of income helped keep the sultanate in the black for 2011. In that year, the CBO reported an OR961m ($2.5bn) fiscal surplus, despite spending a record OR10.47bn ($27.3bn). While substantial, the surplus fell short of officials’ estimate of OR1bn ($2.6bn). In March 2012 the CBO announced that it would earmark OR700m ($1.8bn) from 2011’s surplus to cover the projected OR1.2bn ($3.1bn) 2012 deficit.

By September 2012, the sultanate had recorded a budget surplus of OR2.9bn ($7.5bn), which is equivalent to 10.4% of the sultanate’s GDP in 2011.

Job Creation

More funding will likely offer a significant boost to the administration’s job creation efforts.

Additional public sector jobs have already helped buoy employment numbers in the short term. The economy will need to create 45,000 new positions each year to reduce unemployment and absorb new Omanis entering the workforce, according to the IMF. Current government goals plan to beat those estimates. In the years leading up to 2015, the government aims to create between 200,000 and 275,000 new jobs.

To that end, the government has announced major investments to support job creation. The Ministry of Finance introduced plans to reinvest an additional $1bn from the oil windfalls generated in the first half of 2012 into the economy, an official from the ministry told Reuters in August 2012. In recent years, the government has expanded its role in supporting job growth through the activities of state-owned companies and investments across economic sectors. In July 2012 government-owned Oman Oil Company announced progress on joint investments with Abu Dhabi-based International Petroleum Investment Company. The companies have the goal of boosting Oman’s petrochemicals industry through projects such as the forthcoming Duqm refinery. The facility, with a planned capacity of 230,000 barrels per day, is set to be a key employer in Oman’s central-eastern region.

Tourism Sector

Investment in tourism is also set to rise through Omran, the Ministry of Tourism’s commercial arm, responsible for the sector’s development. Administration officials have pointed out the potential to expand the workforce through tourism growth. “The tourism sector is unique in that every Omani rial invested has a high knock-on effect in job creation, directly or indirectly, far higher than many other industries,” Omran’s CEO, Wael bin Ahmed Al Lawati, told the Oman Daily Observer newspaper in August 2012. “As a result of developing major projects, Omran will create thousands of job opportunities both at construction and operational phases.” The sector also employs a relatively high ratio of Omanis. “So far we have 16,500 people working in tourism, according to a 2010 survey, around 49% of whom are nationals,” Amina Abdullah Al Balushi, director of statistics and geographical information at the Ministry of Tourism, told OBG.


A growing tourism sector could spur economic diversification. In addition to attracting foreign investment, increasing visitor numbers could boost the bottom lines of the retail, transport and hospitality sectors. In the coming years, tourism investment is set to reach $2bn, Ahmed bin Nasser Al Mahrizi, minister of tourism, said in an address delivered before the Oman Chamber of Commerce and Industry on August 7, 2012. Half of that amount is expected to come from the government and local companies, while the other half should come from foreign investors.

Indeed, government spending both in tourism and other sectors could inspire more private investment, the combination of which could help boost the size and employment capacity of the private sector.

Looking Ahead

For the short and medium term, the sultanate’s economy looks to be on steady footing – while governments elsewhere are struggling to reduce deficits, Muscat is forging ahead with higher state investment. A positive fiscal balance, however, hinges on oil prices remaining higher than the government’s break-even point, which it had raised from $58 to $81 in 2012. “The continued buoyancy in oil prices for most of this year have upheld Oman’s average oil export price at $113 per barrel. This as well as strong performance of gas and other revenues have helped boost government's revenues to the level that are more than


You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Oman 2013

Economy chapter from The Report: Oman 2013

Cover of The Report: Oman 2013

The Report

This article is from the Economy chapter of The Report: Oman 2013. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart