News Column

Macroeconomic Developments during 2013 in Sultanate

February 15, 2014



     Muscat, Feb 15 (ONA) ---- The preliminary data available for the first three quarters of 2013 (January-September) pointed to a modest year-on-year nominal GDP growth of 2.6 percent. The growth in nominal GDP reflected a marginal 1.0 percent contraction in the petroleum sector GDP and 7.8 percent increase in non-petroleum sector GDP.   Oil production in the Sultanate during 2013 increased by 2.3 percent to 343.8 million barrels from 336.2 million barrels during 2012. The daily average production increased to 941.9 thousand barrels during 2013 from 918.5 thousand barrels in the previous year. The Omani crude oil prices in the international markets averaged USD 105.5 per barrel during 2013 as compared to USD 109.6 per barrel during 2012.    The average inflation based on CPI for the Sultanate stood at 1.1 percent during 2013 as compared to 2.9 percent in 2012. Despite overall low inflation witnessed in 2013 so far, the pressure on prices in terms of contribution to inflation could be mainly seen from two commodity groups: 'Food, beverages and tobacco' and 'educational services'.    The provisional data on Sultanate's fiscal position pointed to a surplus of RO 401 million during 2013 as compared to a small deficit of RO 80.6 million during 2012. The State General Budget 2014 attempts to rationalize and control Government spending to sustainable limits. The Budget also focuses on reducing the dependence on oil through enhancing the contribution of promising sectors like tourism, agriculture and fisheries.   The State General Budget for 2014 projects the total revenue of the State to increase by 4.9 percent to RO 11.7 billion and total expenditure to increase by 5 percent to RO 13.5 billion. The projected budget deficit for the year 2014 is RO 1.8 billion as compared to RO 1.7 billion projected in the 2013 Budget for the financial year 2013.   The Central Bank of Oman (CBO) adopts appropriate strategy in discharging its responsibilities as a monetary authority to ensure monetary and financial stability depending on domestic and global macroeconomic developments. Within this framework, the CBO also constantly strives to promote a sound macroeconomic environment for enhancing investment and growth of the economy along with keeping a close watch on inflation.   The primary focus of the operating procedure of the monetary policy is to ensure appropriate level of liquidity so as to avoid internal and external imbalances. Given that monetary policy in advanced economies continue to remain accommodative, it is expected that interest rate environment in the Sultanate will be supportive to growth.   Monetary management during the year so far continued to be confronted with abundance of bank liquidity and the need to mop up the excess liquidity took centre stage. Broad money supply M2 registered an annual rise of 8.5 percent on year-on-year basis in 2013 as compared to an increase of 10.7 percent during the previous year. Year-on-year, total credit expanded by 6.0 percent in 2013 to RO 15.2 billion.   Aggregate deposits held with commercial banks registered a significant increase of 10.0 percent to RO 15.6 billion in 2013 from RO 14.2 billion a year ago.   The CBO's liquidity injection policy rate i.e., repo rate remained unchanged at 1 percent since March 2012, consistent with LIBOR rate. The ceiling interest rate on personal and housing loans was reduced by one percentage point to 6 percent with effect from October 2nd, 2013.   The CBO's policy interest rate for absorption of liquidity in the form of CBO CDs of 28 days maturity increased from 0.09 percent in December 2012 to 0.13 percent in December 2013.   In respect of domestic interest rate structure of commercial banks, both deposit and lending rates softened during this period. The weighted average interest rate on RO deposits declined from 1.316 percent in December 2012 to 1.171 percent in December 2013, while the weighted average RO lending rate decreased from 5.649 percent to 5.409 percent during the same period.   The banking sector in Oman continued its positive growth trend in 2013. The total assets of commercial banks increased by 7.2 percent to RO 22.4 billion in 2013 from RO 20.9 billion in 2012.  The capital adequacy ratio at 15.9 percent of risk-weighted assets in September 2013 was higher than the minimum regulatory requirement of 12 percent prescribed by CBO.   As regards Islamic banking, Bank Nizwa had commenced operations in December 2012. Al Izz Islamic Bank commenced operation with a soft launch on September 15th, 2013 and formal launch of operations on September 30th, 2013.  Out of seven local banks, six of them have established windows for practicing Islamic banking.    The financial markets in the Sultanate continued to remain stable. The overnight domestic inter-bank call money rates declined to 0.12 percent per annum in December 2013 from 0.17 percent a year ago. The MSM 30 index as at the end of 2013 increased by 18.6 percent over the previous year.   The market capitalization increased by around 21.4 percent to reach RO 14.2 billion in 2013 from RO 11.7 billion in 2012. Foreign exchange market worked smoothly during 2013.   The balance of payments position of the Sultanate of Oman continued to be comfortable in the first half of 2013, supported by continued growth in Omani exports, both oil and non-oil. Total merchandise exports increased by 15.2 percent, of which the growth in hydrocarbon exports, comprising about 65 percent of total exports, was 5.5 percent. On the other hand, merchandise imports rose by 25.9 percent in the first half of 2013.    Merchandise trade surplus stood marginally higher at RO 4.6 billion in the first half of 2013 as compared to RO 4.5 billion during the same period last year.   The recent trend in merchandise trade indicates that current account surplus in the first half of 2013 will be almost at the same level or marginally higher over the same period last year.   The future prospects of the Omani economy in general remains promising taking into account the pace of economic diversification, favorable oil prices, sustained domestic demand, accommodative monetary policy, large expenditure planned by the Government and the role of the private sector in the development process.   Oman's savings and investment as share of GDP has increased significantly in recent years. Moreover, within the ambit of Eighth Five-Year Development Plan (2011-15), the Government has laid considerable emphasis on large public investment programs, particularly in infrastructure sector.   The country has a fairly well developed physical infrastructure that continues to witness rapid expansion and improvement. The Government has continued to stimulate growth by allocating large expenditure towards completion of infrastructure projects, such as airports, sea-ports, roads, developing the industrial estates, water and wastewater projects.   The advent of Islamic banking is expected to further diversify banking services and expand financial inclusion. All these efforts by the Government and the CBO have resulted in significant acceleration and percolation of growth with economic diversification and increase in employment opportunities. These factors are expected to remain favorable in the coming years.----Ends/AH/KH/FS


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Source: Oman News Agency


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