Macroeconomics is a systematic study of how economic systems behave. It critically focuses on national income trends and analysis of economic factors of major significance. These factors are inflation, deflation, payment position patterns, gross national product and rates of employment and unemployment (Macroeconomics, 2015). In this essay qualitative and quantitative analyses of the macroeconomic aspects of the economy of Oman are discussed based on the following variables: real GDP during the period of 2010-2014, and its growth performance; determination of whether Oman is an oil exporting country or not, and the percentage of the oil contribution to the country`s GDP; inflation and unemployment rates during the period of 2010-2014; strengths and weaknesses of the country’s economy; short and mid-term expectation from the economy and finally my personal opinion and suggestions in regard to what Oman should do to enhance its economic growth.
Gross Domestic Product (GDP) of Oman amounted to USD 81.79 billion in 2015. In 2010, 2011, 2012 and 2013 it amounted to 58.6 billion,67.8 billion,76.2 billion and 78.1 billion dollars respectively. Revenues from the export of oil contribute to above 80% of the budget of Oman. The official exchange rate of GDP was $81.95 billion in 2013. The real growth rate of GDP was 4.5%, 5% and 5.1% in 2011, 2012 and 2013 respectively. GDP per capita was $28,700,$29,200, $29,800 in 2011, 2012 and 2013 respectively. Gross national savings amounted to 41%, 37.4% and 36.2% in 2011, 2012 and 2013 respectively.
In 2013 GDP consisted of: 30.5% - household consumption; 27.3% - investments in fixed capital; 17.8% - government consumption; 63.8% - export of goods and services; -0.5% - investement in inventories; and -39.4% – imports of goods and services. Agriculture contibuted to 1%, services - to 34.6% and industry - to 64.4% of GDP. The agricultuaral pruducts are mainly fish, camels, alfalfa, lime, cattle and bananas. The industrial sector consists of natural and liquefied natural gas (LNG),chemicals, copper, optic fibre,cement, steel, and refining and production of crude oil. The total revenues were $34.42 billion while the expenditures amounted to $35.48 billion. Other revenues and taxes cotributed to 42% of GDP in 2013 and the budget had a deficit of -1.3% of GDP. The public debt was 4.4% and 4.3% of GDP in 2012 and 2013 respectively.
It is expected that the growth of the economy of Oman will slow down due to adverse oil prices. The GDP of the country was expected to drop by 3.2-3.5% in 2014. Even though non-oil GDP have been perfoming better than oil GDP, if the global environment becomes uncertain, there is a likelhood of reduction of public expenditure due to low prices of oil leading to reduced growth of non-oil GDP .
Contribution of Oil to GDP
Oman is one of the world’s largest oil producing nations and oil and natural gas extraction account for 51% of the country`s GDP. The country’s economy majorly relies on oil resources which are currently dwindling. Due to the decrease of oil reserves and a growing labor force, Muscat has created a development plan focusing on privatization, diversification and industrialization. This is done with the objective of reducing the oil sector’s contribution to GDP to 9% by 2020. Another objective is to create employment opportunities for the increasing number of people entering the workforce in Oman. Some of the key sectors at which the strategy of diversification is aimed are the industries dealing with gas and tourism. However, the capability of the country`s government to create an effective budget balance in case of declining revenues from oil is likely to be challenged by the social welfare gain increment during the Arab spring. By 2012, the country`s government managed to create more jobs in the public sector and provide more social subsidies due to increased oil prices.
Inflation Rates in Oman in 2011-2014
In November 2014 annual rate of inflation in Oman was 0.95%. Furthermore, on a month-by-month basis the rate recorded in November increased by 0.1% in comparison with the October 2014 figure. On an annual basis non-alcoholic beverages and food rose by 1.2%, while gas, housing and electricity grew by 0.32%. Additionally, household equipment, furnishings and daily maintenance grew by 6.23%. Education costs increased by 4.5%, while health and communication costs increased by 4.96% and 5% respectively. Restaurants and hotel costs increased by 0.66 %, while tobacco prices increased by 1.72 %. Miscellaneous services and goods also recorded an increase of 0.16%.
On the other hand, there was a decline in culture prices, 0.23% decline in transport costs, and 0.96% in footwear and clothing costs. On a monthly basis, the NCSI report shows a 0.1 percentage rise in the inflation rates in November. This is due to the rise of non-alcoholic beverages and food by 0.36% and 0.03% rise in prices for electricity, gas, housing and other fuels. Additionally, there was a price increment of 0.7% and 0.06% in tobacco and transport costs respectively. Restaurants and hotels costs increased by 0.03%, while health and communication costs decreased by 0.004% and 0.02% respectively. Culture and recreation costs decreased by 0.03 %, while miscellaneous goods and services decreased by 0.06%. At the same time, the costs of household equipment, education, furnishings and clothing remained stable in 2014 November in comparison to October 2014.
Unemployment Rates in Oman during the Same Period
According to the Ministry of Labor 57,664 citizens of Oman were searching for jobs in August, 2013. Even more alarming is the fact that 8,798 Omanis were fired due to several reasons in the first eight months of this year’s (2013). This made the job market tougher for the nationals than it was the previous year. The employment planners of the Omani government are faced with a major challenge brought about by the high number of Omanis (20,034) who resign from their jobs due to unexplained reasons probably to look for government jobs.
As the authorities work out possible ways of creating more job opportunities, corporate heads defend firing of about 9,000 citizens this year. Some of the reasons provided by companies are that youngsters are not properly trained when it comes to skills or employees that are not oriented to the working culture in the private sector. The incomprehensible fact is that a high number of expatriates are successful in acquiring jobs in areas where Omanis find it difficult to find jobs. Statistics provided by the Ministry of Manpower indicate that 130,533 expatriates got jobs in the private sector in comparison to 37,707 Omanis recruited by Omani corporate houses between January and August of 2013. This translates to a number of 1,567,832 expatriates who work in the private sector in comparison to 22,903 of Omanis. This therefore means that the total workforce in the private sector is composed of only 14.6% of Omanis.
20 years ago the main concern of the private sector was that the economy of Oman was performing pretty well and it needed additional skilled manpower but the Omanis lacked the qualifications required for those positions. However, as the statistics show the Omani government addressed this by allocating about OMR 6 billion on specialized and vocational training, and higher education scholarships. This money was used by the Ministries of Manpower and Higher education to enhance the working skills of the Omanis to match the requirements of the private sector. However, two decades have passed but the private sector is still searching for locals with the needed qualifications.
Strengths and Weaknesses of Country’s Economy
The strengths of the Omani economy include: large oil and gas resources ; large foreign asset base which contributes to a net creditor position thus mitigating transfer risk; the country has significant current and fiscal surpluses; the levels of external debt are low and there are repayment commitments; strong import covers; relatively stable political environment; the country enjoys good regional and international relations.
The weaknesses of the Omani economy are the following: Sultan Qaboos doesn’t have an heir; overreliance on gas and oil which amount to 80% of export earnings; expenditure on military is among the highest in the world; possibility of the country`s involvement in conflicts due to its close proximity to Iran which is not good for its economic stability.
Short and Mid-Term Expectations from Country`s Economy
The rate of growth remains buoyant. The government spending has been boosted so as to limit any potential contagion from the Arab Spring. This has been successful and personal consumption and the government sector have underpinned growth. The government`s fiscal policy expansion has been important in strengthening of domestic demand, and in supporting the non-hydrocarbon and services sectors. GDP increased by 5.8% and 5.5% in 2012 and 2013 respectively showing the boost of domestic demand due to social expenditure and investments in infrastructure by the government.
The economy has a favorable outlook. The security forces and the Omani government will continue to monitor the signs of fiscal expenditures and looming dissent. It is expected that GDP will amount to 5% in 2015 even if oil prices are moderate. The main driver of growth in 2014 was investments made by the government in the non-hydrocarbon sector.
The general policy of Omanization is promising. Peaceful protest and demonstrations in 2011 as a part of the Arab Spring made the government increase the Omanization policy aimed at boosting job prospects for the local workforce at the expense of expatriate labor. The Omanization policy seems to increase business costs, deter certain inward investment, and weaken labor productivity. The vision 2020 is a program aimed at economic diversification from hydrocarbons; it focuses on industrialization and privatization. The objective of the program is to achieve an 81% rise of non-oil GDP by 2020.
The pressure of inflation should remain subdued. The consumers are to some extent shielded from demand-driven inflation through the use of subsidies. Generally, price pressures are more likely to be subdued, partly by the use of government subsidies, which limit the inflation expectations, and due to the fact that the central bank is committed to maintain the inflation rate low through prudent monetary policy. Additionally, the consumer demand-driven pressures are limited by gold prices that are relatively weak. Annual variations of the inflation rates are unlikely as it is expected that end-year and annual inflation rates will remain below 3% till the end of 2015.
The surpluses should be continued in the fiscal accounts. Traditionally, budgets adopt an assumption of oil price that is conservative. The 2014 budget traditionally adopted a conservative oil price assumption.
The public debt is expected to remain manageable and low. Debt to GDP ratios were low (below 5%) in both 2011and 2012. Even though it increased by about 6% in 2014 and 2015, they are less likely to initiate servicing problems. In fact, debt ratios are relatively lower when compared to other economies recording a decline from around 25% in 2000.
An ample cover of imports is offered by reserves.. However, in order to maintain liquidity, it is unlikely that access to these funds will be necessary. FX reserves will continue to provide reliable import cover.
It is expected that a positive maintenance of the external accounts will be experienced in 2015. The surpluses are predicted to further reduce, partly showing a raised bill of imports resulting from the downward oil pressure and increased consumption. The surpluses are expected to decline to 3% in 2015. Moderation in the oil prices that are determined internationally is expected in 2015. One of the main risks is a rapid decline in demand for Omani exports to its major export markets like Asia. It is projected that the debt to GDP ratio will range from 14-16% while the debt to export ratio will be approximately 21-24%.
Personal Opinion on What Oman Should Do to Enhance its Economic Growth
From the discussion, diversification of the economic sector is a key to the enhancement of economic growth. This is because overreliance on the oil industry is not safe due to various factors related to oil prices and depletion of oil resources. Additionally, the government should ensure that political and security stability is maintained.
To conclude, various economic parameters of Oman clearly illustrate the strengths and weaknesses of its economy. It is therefore necessary for the country to continue with its vision of economic diversification in order to improve the economy.
In 2014, Gross Domestic Product (GDP) of Oman translated to USD 81.79 billion. The contribution of oil and natural gas to Oman’s gross domestic product is 51%. In November 2014 Oman recorded an annual inflation rate of 0.95%. According to the Ministry of Labor, 57,664 citizens of Oman were searching for jobs in August, 2013. The major strength of the economy of Omani is its oil sector. The major weakness is the absence of an heir to the throne. Both short and mid-term expectations in regard to the performance of the country`s economy are encouraging.