Oman has joined Saudi Arabia in announcing higher public expenditure for this year despite a sharp decline in oil prices and an expected lower private investment because of a global credit crunch.
Spending was forecast at RO6.424 billion (Dh61.28bn) compared to a budgeted expenditure of RO5.8bn (Dh5.7bn) in 2008. Revenues were also estimated higher at RO5.614bn in 2009 compared to projected earnings of RO5.4bn in 2008.
The increase in spending nearly doubled the forecast budget deficit to RO810 million from RO410m in 2008.
"Although the deficit this year is considered high in absolute value, it is within safe limits and economically accepted levels relative to the gross domestic product," Omani Minister of National Economy Ahmed bin Abdul Nabi Mecki said while announcing details of the 2009 budget.
His figures showed the revenues included around RO3.522bn in oil exports and nearly RO670m in gas sales.
He said the deficit would be financed through withdrawal from the state reserve fund in case actual revenues remain lower than actual spending through 2009.
Mecki, quoted by the official Omani news agency, said the 2009 budget was based on an average price of $45 for Omani crude and production of nearly 805,000 barrels per day, slightly higher than the output target of 790,000 bpd announced by the government in 2008.
He said the new budget includes allocations of around RO665m for new projects to stimulate the domestic economy, which he expected to slow down in 2009 as a result of the global financial crisis.
"Like other countries, Oman's economy will be impacted by the global financial crisis but its strong fiscal position during the oil boom, which allowed us to consolidate our resources and cut domestic debt, will partly offset that impact."
Mecki projected real GDP growth at around one per cent in 2009 after rocketing by nearly 40 per cent in nominal terms in 2008.
"The high nominal growth last year was a result of a sharp rise in oil prices, strong domestic demand, better investment climate and improved exports… all economic sectors contributed to growth last year," he said.
The surge in oil prices also sharply boosted the country's external account position, with the current account recording a surplus of around RO1bn in 2008 and the trade surplus peaking at RO5.3bn despite a surge in imports, Mecki said.
Experts said Oman budgeted higher expenditure this year apparently because it expects oil prices to exceed the assumed level and it was encouraged by a massive budget surplus recorded in 2008 as a result of a surge in its income.
Official figures showed strong oil prices through most of 2008 allied with higher crude output to boost the country's fiscal surplus to a record high level in the first 11 months of 2008 despite a sharp rise in actual expenditure.
The budget surplus totalled around RO1.979bn during January-November and experts believe it would smash through the RO2bn mark by the end of the year for the first time in the country's fiscal history.
The surge was a result of a sharp increase in the Gulf country's income, which climbed to an all-time high of RO7.7746bn in the first 11 months of 2008, far higher than the total revenues in 2007. Spending also soared to a record RO5.767bn during January-November and more than half of it was in current expenditure.
The level is nearly 11 per cent higher than the RO5.2bn actual expenditure in the same period of last year, the Central Bank of Oman (CBO) said.
Like other Gulf oil producers, a surge in average crude prices to around $100 a barrel in the first 11 months of 2008 boosted Oman's oil export income to its highest ever level and the increase combined with expanding LNG sales and other revenue to sharply widen its fiscal surplus.
In the first three quarters of this year, Oman's income surpassed its total revenues of around RO5.9bn during 2007, according to CBO.
The oil prices average of around $100 is nearly 42 per cent higher than the $70 price average last year while Oman's crude output continued to steadily rise in 2008 as it is pushing ahead with a major capacity expansion programme. Oman's average oil production swelled to around 745,000 barrels per day in the second quarter of this year from around 707,000 bpd in the first quarter.
The increase was in line with plans by the government to push up crude output to an average 790,000 bpd in 2008 after a steep fall in output over the past five years because of lower than expected oil investment to fund gas projects. Like other Gulf oil producers, strong oil prices have turned Oman's fiscal deficits into surpluses over the past five years.