Cen­tral Bank of Oman An­nual Re­port un­veiled

Muscat Daily - - RENAISSANCE DAY -

Mus­cat - The An­nual Re­port of the Cen­tral Bank of Oman (CBO) for 2016 was re­leased on July 16. The re­port con­tains the over­all macroe­co­nomic as­sess­ment of Oman dur­ing 2016 and anal­y­sis of ma­jor sec­tors of the econ­omy through five Chap­ters on Out­put, Em­ploy­ment and Prices (Chap­ter II); Oil and Gas (Chap­ter III); Pub­lic Fi­nance (Chap­ter IV); Money, Bank­ing and Fi­nan­cial In­sti­tu­tions (Chap­ter V); and For­eign Trade and Bal­ance of Pay­ments (Chap­ter VI). Chap­ter I on Overview and Out­look pro­vides a brief re­view of the macroe­co­nomic de­vel­op­ments along with an as­sess­ment of the out­look for the econ­omy in the neart­erm. The An­nual Re­port also con­tains the au­dited bal­ance sheet of the CBO as well as im­por­tant CBO reg­u­la­tions is­sued dur­ing 2016 and the first half of 2017.

The Omani econ­omy con­tracted in nom­i­nal terms for the sec­ond year in a row in 2016, af­ter a sus­tained ro­bust ex­pan­sion over five years (2010-14), mainly due to steep de­cline in hy­dro­car­bon prices. De­spite ex­pan­sion in out­put, the rev­enues from hy­dro­car­bon sec­tor de­clined re­flect­ing lower level of oil prices caused by slack­en­ing of ex­ter­nal de­mand. At the same time, do­mes­tic de­mand also weak­ened due to de­cline in Gov­ern­ment ex­pen­di­ture by 5.8 per cent. Con­se­quently, Oman’s nom­i­nal GDP con­tracted by 5.1 per cent in 2016, on top of a drop of 13.8 per cent in 2015. Com­po­nent-wise, nom­i­nal oil sec­tor GDP de­creased by 23.7 per cent in 2016 while the non-oil sec­tor reg­is­tered a growth of 0.6 per cent dur­ing the pe­riod. Man­u­fac­tur­ing sec­tor de­clined by 17.2 per cent dur­ing 2016, mainly re­flect­ing weak ex­ter­nal de­mand. Agri­cul­ture and fish­ing sec­tor, how­ever, reg­is­tered a solid growth of 16.3 per cent in 2016 as against an av­er­age growth of about 6.4 per cent in the pre­vi­ous five years. The in­ten­sive ef­forts of the gov­ern­ment aimed at eco­nomic diver­si­fi­ca­tion have con­trib­uted sig­nif­i­cantly to the growth of ser­vices sec­tor and its share to GDP im­proved to 53.5 per cent in 2016 from an av­er­age of 39.6 per cent dur­ing the pre­vi­ous five years. Notwith­stand­ing con­trac­tion in nom­i­nal GDP, the real GDP growth is ex­pected to be pos­i­tive in 2016.

The re­cent pol­icy pro­grammes, in­clud­ing the Ninth Five Year Plan and Tan­feedh, aim at eco­nomic diver­si­fi­ca­tion with ex­panded par­tic­i­pa­tion of the pri­vate sec­tor, and gen­er­at­ing enough ad­di­tional em­ploy­ment op­por­tu­ni­ties in Oman. The em­ploy­ment gen­er­a­tion in the pub­lic sec­tor re­mained sub­dued and grew by 1.6 per cent in 2015 with em­ploy­ment of Oma­nis in­creas­ing by 0.9 per cent. The share of Oma­nis in the pub­lic sec­tor em­ploy­ment, how­ever, con­tin­ued to re­main at around 85 per cent. On the other hand, the em­ploy­ment of Oma­nis in the pri­vate sec­tor grew by 6.4 per cent in 2016.

In­fla­tion­ary pres­sure in Oman is largely con­di­tioned by gov­ern­ment spend­ing, in­ter­na­tional prices, and the move­ment of US dol­lar due to the peg­ging of Omani rial. Notwith­stand­ing the de­cline in gov­ern­ment ex­pen­di­ture, the av­er­age in­fla­tion based on CPI for the sul­tanate in­creased to 1.1 per cent dur­ing 2016 from 0.1 per cent in 2015 mainly due to the re­cov­ery in in­ter­na­tional com­mod­ity prices, and in­crease in en­ergy prices and other user fees and charges. Nev­er­the­less, the con­sumer in­fla­tion in Oman com­pares favourably with that of Gulf Co­op­er­a­tion Coun­cil (GCC) coun- tries which is pro­jected to rise to 3.5 per cent in 2017 from 2.9 per cent in 2016. Both de­mand and sup­ply side fac­tors em­a­nat­ing from do­mes­tic as well as ex­ter­nal sources have im­pacted the price level in Oman.

Af­ter plung­ing sig­nif­i­cantly in Jan­uary 2016, in­ter­na­tional oil prices re­cov­ered sub­se­quently but con­tin­ued to be at the lower level and af­fected the oil ex­port­ing coun­tries ad­versely, in­clud­ing Oman. Nonethe­less, the hy­dro­car­bon sec­tor re­mained the main­stay of the Omani econ­omy with its con­tri­bu­tion to nom­i­nal GDP at 27.4 per cent in 2016.

Sharp de­cline in crude oil prices

The sharp de­cline in crude oil prices ex­plained the sharp re­duc­tion in the con­tri­bu­tion of this sec­tor to GDP dur­ing 2016 and it cer­tainly did not re­flect the on­go­ing struc­tural change in the Omani econ­omy. The av­er­age price for the Omani crude oil dropped to US$40.14 per bar­rel in 2016 from US$56.45 per bar­rel in 2015 and US$103.23 per bar­rel in 2014. Oil and gas rev­enues ac­counted for 68.2 per cent of gov­ern­ment rev­enues and about 57.9 per cent of to­tal mer­chan­dise ex­ports (in­clud­ing re-ex­ports) dur­ing the year.

Oman con­tin­ued to face var­i­ous macroe­co­nomic chal­lenges, in­clud­ing large fis­cal deficit. The 2016 bud­get un­der­took var­i­ous re­forms and ini­tia­tives to boost eco­nomic ac­tiv­i­ties in the pri­vate sec­tor, con­tain fis­cal deficit, and pro­mote macroe­co­nomic sta­bil­ity. Notwith­stand­ing th­ese re­form mea­sures, to­tal gov­ern­ment rev­enue de­clined by 16.1 per cent in 2016 due to sub­stan­tial fall in oil rev­enues which con­tracted sharply by 35.4 per cent. Fis­cal mea­sures an­nounced in the bud­get, how­ever, con­tained the gov­ern­ment ex­pen­di­ture, which de­clined by 5.8 per cent to RO12,908.2mn in 2016. As cur­tail­ment in ex­pen­di­ture fell short of de­cline in rev­enues, the fis­cal deficit ex­ac­er­bated to RO5,300mn in 2016 from RO4,361.4mn in 2015. The 2017 bud­get has reaf­firmed the gov­ern­ment’s com­mit­ment to un­der­take fis­cal con­sol­i­da­tion and ac­cord­ingly, the fis­cal deficit has been bud­geted to de­cline to RO3,000mn in 2017. Ra­tio­nal­i­sa­tion of ex­pen­di­ture in favour of de­vel­op­ment ex­pen­di­ture, pro­posed in 2017 bud­get, sug­gests qual­i­ta­tive im­prove­ment.

The mon­e­tary pol­icy con­tin­ued with its ac­com­moda­tive stance dur­ing 2016 in or­der to sup­port real eco­nomic ac­tiv­i­ties, de­spite some uptick in in­fla­tion. De­spite a sharp fall in re­serve money, the broad money grew by 1.8 per cent at the end of 2016 due to in­crease in money mul­ti­plier. The out­stand­ing banks credit, how­ever, grew by 10.1 per cent as at the end of De­cem­ber 2016, which was partly driven by greater flex­i­bil­ity pro­vided to banks in their liq­uid­ity man­age­ment by treat­ing in­vest­ment in gov­ern­ment se­cu­ri­ties as part of el­i­gi­ble re­serves up to a max­i­mum of two per cent of the de­posits. On the other hand, ag­gre­gate de­posits held with banks in­creased by 5.2 per cent in De­cem­ber 2016. Lower growth in de­posits as com­pared to credit growth re­sulted in some tight­en­ing of liq­uid­ity con­di­tions, and in­crease in in­ter­est rates in the econ­omy.

The CBO con­tin­ued with its fi­nan­cial re­forms agenda in or­der to en­sure that fi­nan­cial sys­tem be­comes more re­silient and fi- nan­cial sta­bil­ity is not un­der­mined. Sev­eral reg­u­la­tory and su­per­vi­sory ini­tia­tives un­der­taken by the CBO dur­ing 2016 fo­cused on im­prov­ing fi­nan­cial in­clu­sion, strength­en­ing riskbased su­per­vi­sion, im­ple­men­ta­tion of Basel norms, and en­sur­ing ad­e­quate liq­uid­ity and im­prove­ments in pay­ment and set­tle­ment sys­tems.

Con­se­quently, the bank­ing sec­tor con­tin­ued to re­main ro­bust and met the credit needs of all seg­ments of the econ­omy. Notwith­stand­ing in­cip­i­ent delin­quency due to eco­nomic slow­down, the cap­i­tal ad­e­quacy ra­tio fur­ther im­proved to 16.8 per cent at the end of 2016 as com­pared to 16.1 per cent at the end of pre­vi­ous year and con­tin­ued to be sig­nif­i­cantly higher than the min­i­mum reg­u­la­tory re­quire­ment.

Global crude oil prices con­tin­ued to be at lower level, and as a re­sult, the bal­ance of pay­ments po­si­tion came un­der se­vere pres­sure with the cur­rent ac­count re­main­ing in a siz­able deficit dur­ing the sec­ond year in a row dur­ing 2016. The mer­chan­dise trade sur­plus de­creased by 31 per cent to RO2,406mn in 2016 from RO3,506mn a year ago mainly due to de­cline in ex­ports which was partly off­set by sharp de­cline in im­ports by 19.9 per cent. The com­bined deficit on ser­vices, in­come and cur­rent trans­fers stood lower at RO7.1bn in 2016 in com­par­i­son to RO7.7bn in 2015.

The cur­rent ac­count deficit in­creased to RO4,737mn in 2016 (18.6 per cent of GDP) from about RO4,212mn (15.7 per cent of GDP) in 2015. The cap­i­tal and fi­nan­cial ac­counts wit­nessed much lower net in­flows at about RO1,700mn in 2016 as against about RO4,617bn in 2015. The over­all bal­ance of pay­ments po- sition reg­is­tered a deficit of RO3,521mn dur­ing 2016, which was funded by draw­ing down from for­eign ex­change re­serves by the equiv­a­lent amount. As at the end of 2016, the gross for­eign as­sets of the CBO stood at RO7,791mn, pro­vid­ing mer­chan­dise cover for around 11 months of im­ports of the mer­chan­dise goods (net for­eign as­sets, how­ever, pro­vided im­port cover of about eight months).

Out­look for the Omani econ­omy

Lower hy­dro­car­bon prices con­tin­ued to weigh on the over­all macroe­co­nomic sce­nario in Oman, notwith­stand­ing var­i­ous re­form mea­sures un­der­taken by the au­thor­i­ties to im­prove fis­cal bal­ance, and pro­mote eco­nomic diver­si­fi­ca­tion to re­duce de­pen­dence on the oil sec­tor. Both the cur­rent ac­count bal­ance and fis­cal bal­ance re­mained in large deficit for the sec­ond con­sec­u­tive year in 2016.

The out­put in hy­dro­car­bon sec­tor de­clined sig­nif­i­cantly, while non-hy­dro­car­bon sec­tor out­put grew marginally in 2016. Over­all nom­i­nal GDP (at mar­ket prices) con­tracted by 5.1 per cent, while in­fla­tion inched up to 1.1 per cent dur­ing 2016.

The fis­cal deficit fur­ther bur­geoned and con­se­quently, debt to GDP ra­tio shot up from 12.8 per cent at the end of 2015 to 31.4 per cent at the end of 2016. Broad money grew moderately re­flect­ing eco­nomic slow­down. Notwith­stand­ing the bank­ing sec­tor re­mained ro­bust, in­ter­est rates in the econ­omy hard­ened re­flect­ing some tight­en­ing of liq­uid­ity.

The full re­port is avail­able at www.cbo.gov.om un­der the ti­tle Pub­li­ca­tions.

H E Hamoud San­gour al Zad­jali, ex­ec­u­tive pres­i­dent of CBO

Newspapers in English

Newspapers from Oman

© PressReader. All rights reserved.