Source: The EIU


Geography and Natural Resources

The Sultanate of Oman occupied 212,460 square kilometers of the northeastern tip of the Arabian Peninsula and supported a population of about 2.63 million in 2007. Oman is primarily a hydrocarbon-based economy. In addition to hydrocarbons, Oman has some deposits of copper, iron, chromites and gypsum. In 2005, total merchandise exports were valued at more than $18.7 billion, of which crude oil exports accounted for $13.1 billion; liquefied natural gas $2.3 billion; base metals and articles $249 million; refined petroleum products about $230 million; and other mineral products $131 million.



The Sultanate of Oman has been enjoying a stable political, economic and social system, thanks to the wise policies of its visionary leader His Majesty Sultan Qaboos bin Said al-Said.  Though the economy is mostly dependent on oil and gas revenue and government expenditure, the private sector is slowly emerging as a key player in the economic development of Oman. Economic diversification particularly with the establishment of manufacturing, tourism, real estate and infrastructure projects is high on the government agenda.

 Backed by the strong international oil prices in 2005, 2006, 2007 and so far in 2008, the government is now gearing up to use this opportunity to introduce wide-ranging structural reforms. Reform efforts over the past few years have strengthened competition in many sectors of the economy and has fostered above average growth trends in the vital non-oil sector. In addition, an economic diversification programme aimed at the development of its gas resources is under way with massive investments in key projects.

The Omani economy witnessed strong average growth of 15.9 per cent since 2004. Though growth tapered down a little during the last two years on account of higher inflation, it still remains impressively unabated at 12.03 per cent for 2008 (at current prices) as per the recent estimates made by the IMF. Despite rising prices, particularly related to foodstuff and consumer goods, inflation was contained at around 3.8 per cent during 2007 and expected to be lower at 3.5 per cent during 2008 as per the IMF. Interest rates have been declining through 2007 on account of higher liquidity and Overnight Inter-bank Lending Rate declined to 0.5 per cent during April 2008 from 3.4 per cent during November 2006. On a Purchasing Power Parity basis, the average economic growth is an impressive 8.72 per cent over the same period. Credit goes to liberal Government policies encouraging private sector and foreign investments and a visionary Seventh Five Year Plan with a bold development thrust (Vision 2020).

On the supply side rising oil prices helped the Omani Government to implement its development plans, while on the demand side, apart from the economic growth that fueled demand, rising population and the demographic dynamism of Oman has played a significant role.  On the whole, a favourable stock market, higher oil prices and better liquidity, significant rise in domestic demand and an inflationary condition that stimulates growth, all have helped the economy to maintain an enviable and sustainable growth rate over the past five years across all segments of the economy.

Citing the government's healthy fiscal position and the prospects for gas-led industrial growth from 2006 onwards, Standard & Poor's (S&P) has upgraded Oman's sovereign and other ratings.  


July 2008

Sovereign risk


Currency risk


Banking sector risk


Political risk


Economic structure risk


Source: EIU Country Data

Money Supply and Interest Rates

There is ample liquidity in the banking system particularly since 2006 and the Central Bank of Oman (CBO) regularly absorbed surpluses through issuance of certificates of deposit and occasional injection of short-term liquidity through repos. As there were no treasury bills or new bonds issued by the government, the demand for CDs remained high.

Money Supply as measured by Broad Money increased by 54.6% during the first half of the current year over the previous year to RO 7 billion, while inter-bank lending rate declined sharply to 0.66% in June 2008 from 1.57% in December 2007. However, the commercial banks deposits and lending rates have fallen only marginally over the past 6 months and bank’s credit spread remains healthy at 4.94% in June as compared to 5.22% in December 2007.

In order to curb excess liquidity in the financial system and contain inflation, the Central Bank of Oman raised funds amounting to RO 940 million through the issuance of Certificate of Deposits during June 2008 and also increased the Repo rate by 10 basis points.  In addition to the above, the Central Bank of Oman has also proposed to increase cash reserve ratio from 5% to 8% from August 1, reduction in lending to deposit ratio of banks from 87.5% to 85% from August 1 (and further to 82.5% from November 1, 2008) and lowering of interest rates on personal loans from 8.5% to 8% with immediate effect. All these may have an adverse impact on the commercial banks’ interest spread in the short-term, however, will not impact their profitability as their top line growth rates are still very high. 

However, the spillover effect of these restrictive liquidity measures on the other two sectors will be minimum as there is still enough liquidity in the financial system and non-banking financial services companies are taking big steps in capturing some of the consumer lending and factoring areas.


Demographic Strength

According to the most recent estimates available, Oman’s population is very young with around 95 per cent of its total 2.63 million population (July 2007 estimates, CIA) being in the age group of 1-49 years. The largest concentration of its population, i.e., almost 51 per cent is in the age group of 15-34 years. 

The Sultanate of Oman has a very high adult literacy rate of around 76 per cent. Over the years, the Sultanate has laid increasing emphasis on education and there has been commendable increase in the establishment of schools and appointment of teachers to provide free education up to the higher secondary level. There have been both government and private sector initiatives in the recent past to set up higher education universities and specialized training colleges in the country.  This has led to slow but steady growth in the employment of local Omani youth over the past few years, In addition to the above, there has been a remarkable growth in per capita income of almost 50 per cent in the past 5 years.  

Strong Development Thrust

The current year’s Budget is more in line with the visionary development thrust embodied in the Plan and Vision 2020 documents. 

The Budget is based on an average oil price of US$ 45, but oil prices, in all counts, are going to remain high on account of continuing demand from fast developing economies like China, India, Nordic and the MENA regions, adding surplus funds to the State General Reserve and warding away the deficit issue. Oil and gas continues to remain the main revenue sources of the economy with a share of 66.9 per cent and 11.5 per cent, respectively, though some marginal improvement has been noticed in current and capital revenues. Currency peg to the US Dollar is also to remain, driving away uncertainties about the future of the Omani Rial, as the US Dollar is already at an all time low against all major currencies and this may not be an appropriate time to switch the currency peg.

Most importantly, the budget will continue to stimulate key drivers of the economy- health, education, infrastructure, social security & welfare and development of non-oil resources through increased allocation of current and developmental expenditure.

Gross expenditure for 2008 is estimated at RO 5.8 billion, an increase of 20 per cent over 2007. Education remains the major thrust area with an allocation of 37 per cent of total current expenditure, an increase of 17 per cent over the previous year’s allocation. Health comes a distant second with an allocation of 12 per cent, an increase of 15 per cent over the previous year. There is a marked improvement in social security and welfare sector allocation from 4.86 per cent in 2006 to 7.37% in 2008.

On the investment front, the Government has increased development expenditure by 45 per cent for 2008 to RO 725 million to cover ongoing projects as well as new projects. So far, cost of the development projects approved in the Seventh Five-Year Plan has gone up by 68.5 per cent to billion to RO 5.1 billion from RO 3 billion allocated initially.

Infrastructure Sector will continue to be a focal area, with an estimated share of 55.74 per cent and continuing emphasis on the development of roads, seaports, airports and irrigation and water resources in the Government’s sector-wise breakup of development expenditure for 2008. The Government had budgeted to invest 59 per cent of total allocation for the Services Sector in water, 20% in housing and 19 per cent in Posts, Telegraph and Telephones in 2007. This sector will continue to occupy the second place with an estimated share of 24.3% in the total development expenditure. 

 Investment in the Social Structures Sector will see some marginal improvement from 17.88% in 2007 to an estimated 17.98 per cent in 2008 and education and health will continue to be the key development areas with an estimated share of 45 per cent and 22 per cent within this sector, respectively. Over the years, developmental expenditure related to the Commodity Producing Sector has reduced from 5.9 per cent in 2005 to 2.62 per cent in 2007 and is likely to fall further to 2.14 per cent in 2008 as the Government reduced its investment in the oil and gas sector. However, the Government is expected to continue most of its investments in this sector in developing industry, agriculture and fisheries to further diversify the economy.

In addition to the above, the following policy measures taken by the Government recently will have long-term sustainable effect on the economic growth of the country.

  Vision 2020

The Government’s ambitious privatization plan and relaxation in foreign capital investment laws essentially creates an environment to achieve an ambitious economic goal by 2020. Enshrined in the Vision 2020 document, the Fundamental Goals of the Omani Economy by 2020 are as follows: - 

·         To develop a private sector capable of optimum use of human and natural resources in an efficient and ecologically- sound way, in close collaboration with the government.

Projections for the Vision for Oman's Economy Oman 2020

Main Economic Indicators as a % of GDP (Base Year 1988=100)







Total Government Revenue
Total Government Expenditure
Budget Balance





Total Final Consumption
Domestic Saving





Total Investment
-Public Investment
-Private Investment






Total Imports
Total Exports
-Non Oil Exports
-Oil Exports
Current Account (Balance)





Public External Debt
State General Reserve Fund Balance











Gross Domestic Product
Non Oil GDP
GDP Per Capita





Planned Development Key to Oman's Economic Success

The major focus of the Seventh Five Year Plan (2006-2010) is on the following areas: -

 Development of Non-Oil Sector Revenue

The Seventh Five Year Plan (2006-2010) lays emphasis on developing non-oil sectors and increasing private sector investments in projects.  The total size of investments during the Plan period is expected to be RO 13.1 billion, of which the private sector is expected to contribute 46%. The total estimated cost of ongoing projects in various projects in Oman is RO 15.8 billion, break-up of which, is as follows: - Tourism: RO 6.7 billion, Industrial: RO 8.5 billion, Water and Power: RO 0.2 billion, Defence: RO 0.023 billion, Port and Airport expansion: RO 0.304 billion.

The large ongoing and new projects in the country will provide a boost to economic activity in the country and result in higher demand for both downstream and upstream ancillary projects and other related industrial projects in the small to medium enterprise segment.

            Estimated Investments During the Omani Government’s

Seventh Five-Year Plan (2006 – 2010)


Rial Omani Million

% to total

Capital Expenditure on Oil



Investment in Gas-based Industries



Total Investment in Oil & Gas



Investment in other Industrial Projects



Private Sector Investments in Industrial Projects



Other Investments



Total Investments



Contributed by:



Public Sector



Private Sector



 Ongoing Projects

Privatization projects in the power sector, cement sector, partial privatization of Omantel and opening up of the telecom sector to a Foreign Service provider are consistent with Oman’s commitments made under the WTO. Al Kamil Power, AES Barka and Dhofar Power Company are examples of growing private sector participation in the energy sector. Massive investments have been committed in areas such as power, aluminium, fertilizers, petrochemicals, water desalination, infrastructure related works and tourism sectors, in addition to multi-billion dollar investments in construction projects such as Sohar Refinery, Oman Polypropylene and Sohar Aluminium. There are also a large number of major real estate and tourism sector investments in the pipeline.  A total of 37 major projects have been started during the recent years with an investment outlay or RO 15. 75 billion.