Oman reports huge fiscal surplus in H1

Oman recorded a massive fiscal surplus of about RO708.2 million (Dh6.8 billion) in the first half of 2010 after oil prices shot by more than 50 per cent above their projected level, official data showed on Monday.

The surplus dwarfed the meagre RO2.5m budget surplus recorded in the first half of 2009, when oil prices averaged below Oman’s target of around $45 a barrel, showed the figures by the Ministry of Economy.

A budget breakdown showed the surplus surged after revenue leaped by nearly 30.5 per cent to RO4.22bn in the first half of 2010 from around RO3.23bn in the first half of 2009.

The increase was mainly a result of a 54 per cent growth in oil export earnings to nearly RO2.84bn from RO1.84bn.

The figures showed the surge in Oman’s oil income was due to higher crude prices and an increase in the country’s oil output to nearly 856,000 barrels per day in the first half of this year from 792,000 bpd in the same period of 2009.

Oman has been locked in a massive development programme to reverse a decline in its crude output capacity because of low field investments.

The figures showed the pride of Omani crude jumped by nearly 70 per cent to $77.3 a barrel in the first half of 2010 from $45.7 in the first half of 2009. Oil prices were also more than 50 per cent higher than the $50 price assumed by the government in its 2010 budget compared with $45 for the 2009 budget.

Buoyed by stronger oil prices, Oman early this year joined other Gulf nations in announcing a record high budget with an ongoing fiscal stimulus to cushion the effects of the 2008 global fiscal turbulence.

The 2010 budget was based on a more optimistic oil price of $50, according to Omani Minister of National Economy Ahmed Mecki, who put spending at RO7,180m, nine per cent above the 2009 record budget.

Revenues, generated mostly from oil and gas sales, were assumed at RO6,380m, leaving a deficit of RO800m.

Official data showed the revenues include around RO4,050m in oil exports, accounting for about 63 per cent. Gas revenues are estimated at nearly RO800m.

In 2007, non-Opec Oman approved a $10bn programme to develop its crude oil and natural gas resources, which are officially estimated at around five billion barrels and 30 million cubic metres, respectively.
The plan is intended to develop gas deposits and push up oil production to previous levels after a steady decline for nearly four years.

Production began recovering in 2008, when it grew by nearly 6.5 per cent to 756,000 bpd from 710,000 bpd in 2007. In 2009, Oman achieved its budget target of pumping nearly 810,000 bpd.

The ministry’s figures showed the budget recorded a large surplus in the first half of this year despite an increase in actual spending to around RO3.517bn from RO3.232bn in the first half of 2009.

Most of the increase in expenditure was in development spending, which swelled by around 7.9 per cent. Current spending grew by about 5.8 per cent but defence expenditure, a major component of Oman’s budget, was cut by nearly 3.2 per cent. Oil production expenditure plunged by around 19 per cent.

Releasing its 2009 annual economic report last month, the Central Bank of Oman (CBO) said the government considered $50 as a conservative oil price given the growing signs of global economic recovery and forecasts that prices would end the year much higher that the forecast average.

“As is traditionally the case, and based on conservative crude oil price assumption used for government budget for the year 2010, a fiscal deficit of RO800m is anticipated compared to a deficit of RO810m estimated in the 2009 budget,” CBO said in its 125-page report.

“The fiscal deficit under the 2010 budget is to be financed from government reserve funds although there is a scope for borrowing or a combination of both. As the average price realisation for Omani crude is expected to be much higher in 2010 than the budget assumption of $50 per barrel, pressure on the overall fiscal balance may be less than in 2009.”

CBO’s figures showed Oman’s budget deficit in 2009 was cut from a projected RO810m to around RO680m at the end of the fiscal year because of higher than expected oil export earnings.

The deficit was trimmed despite an increase in actual spending to around RO7.4bn from a forecast RO6.42bn.

Oil earnings surged from a projected RO3.5bn to RO4.49bn, boosting total actual revenue from RO5.61bn to RO6.74bn, according to the CBO report.

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