Oman GDP Oil Exports and Growth

¶ … Economic Advisor to the Prime Minister of Oman

With the upcoming election, it is important for you to understand the economic conditions in which Oman is currently situated. Oman is a country whose main export is petroleum. Like the other oil rich countries in the Middle East, it is highly dependent upon oil for its economy. The recent plunge (2013 to present) in oil prices since reaching a peak of $150 per barrel in June 2008[footnoteRef:1] has placed stress on Oman's economy. Our nation has been rated extremely well by Western ratings agencies in the past. For example Standard and Poor's rating was ranked Stable and still is, with a BBB-/A-3 rating which represents the firm's stable outlook on Oman. S&P in fact indicated that "Oman can broadly maintain its fiscal and external stock positions over 2016-2019 against risks from weakening economic income, fiscal and external flows."[footnoteRef:2] This is a piece of welcome news for a country whose economic foundation rests on the ability to export petroleum, import industrial equipment, and maintain good relations and economic ties with both East and West. This report will validate the consensus opinion among the ratings agencies in the West that Oman's economic outlook is both healthy and stable, in spite of the downward pressure that low oil prices in recent years has placed not only on Oman but on all oil-producing countries around the world. In short, every country that exports petroleum is feeling the effects of low oil prices and so the stress that Oman is experiencing is not unique to within its borders. Moreover, the country's recent bond offering has enabled the country to shore up cash reserves[footnoteRef:3] in order to ensure a stable outlook in the coming years even if oil prices do not rise as quickly as the producing nations of the world might prefer to see. [1: Crude Oil Prices -- 70-Year Historical Chart. Macrotrends. Web. 25 July 2016. ] [2: Shereen El Gazzar, "S&P affirms Oman's rating." The National, 21 May 2016. Web. 25 July 2016. ] [3: Carolyn Cui, "Oman government sells $2.5 billion of global bonds," The Wall Street Journal, 9 June 2016. Web. 25 July 2016. ]

Overview of Oman's Economy

Oman's GDP (Purchasing Power Parity) is $177.329 billion. Its per capita GDP (Purchasing Power Parity) is $44,903. The country's nominal GDP is $81.637 billion, with per capita nominal at $21, 687.[footnoteRef:4] Thus, the country ranks 64th among the world's economies (in nominal GDP) and 74th (in Purchasing Power Parity GDP). Its GDP growth rate year over year stands at 3% and by sector, its GDP growth rate is most significant in industry (65%) and services (39%). Its inflation rate stands at 1%.[footnoteRef:5] Since 1980, the country's GDP has increased more than 10x, which is a significant rate compared to other developed countries such as the U.S. Oman is thus rightly described as a fast-growing economy that has made significant strides in recent years and that has reasonable expectations of continuing the advancements it has made. Indeed, the success of its bond sale in June 2016 (its first offering since 1997), indicates just how much faith the world's markets, nations and investors have in Oman's ability to deliver. Due to the demand for the bonds, the coupon rate for them came in lower than anticipated, with five-year notes coming in at 3.625% and ten-year notes coming in at 4.75%.[footnoteRef:6] This shows that investors have a great deal of confidence in Oman's near- and long-term outlook and in its ability to pay the interest on the bonds to maturity. Oman can therefore take pride in itself, remembering that it is indeed the "largest Middle East oil producer outside the Organization of the Petroleum Exporting Countries" better known as OPEC.[footnoteRef:7] [4: International Monetary Fund. "Oman." Web. 25 July 2016. ] [5: World Factbook. "Oman." CIA. Web. 25 July 2016. ] [6: Carolyn Cui, "Oman government sells $2.5 billion of global bonds," The Wall Street Journal, 9 June 2016. Web. 25 July 2016. ] [7: Carolyn Cui, "Oman government sells $2.5 billion of global bonds," The Wall Street Journal, 9 June 2016. Web. 25 July 2016. ]

Still, it is important to realize that 85% of the country's revenue comes from oil and gas, which means that so long as energy prices remain low, the country will have to rely upon its creditworthiness and its ability to reduce expenditures in order to make ends meet in these trying times. Currently, Oman is looking at an $8.6 billion deficit, or 17% of GDP, with regard to its budget for the current year.[footnoteRef:8] Already the country has shown its willingness to cut spending, which is a responsible maneuver on its part -- and very respectable, considering that the developed nations of the world are only adding to their deficits year-over-year. Oman is actually working to reduce them, even in times of economic stress such as now. This should be a reassuring sign to the people: its leaders are taking steps to act responsibly and not burden the country's peoples with a crushing debt that future generations would be responsible for paying. It is true that the country has been forced to tap its foreign reserve holdings to gap the shortfall; and as the recent bond offering shows, there is a need for the first time in two decades for the country to sell government debt to investors.[footnoteRef:9] But these are measures that must be taken in order to guarantee that the country's infrastructure is protected and strengthened while the world's markets stabilize and oil production can once more be depended upon to produce maximum profits for the country. [8: Reuters. "Oman to cut budget deficit 27 pct this year, minister says." Reuters, 1 Jan 2016. Web. 25 July 2016. ] [9: Carolyn Cui, "Oman government sells $2.5 billion of global bonds," The Wall Street Journal, 9 June 2016. Web. 25 July 2016. ]

The current population of Oman is 4,441,448 persons.[footnoteRef:10] 1 million of them are currently in the workforce. Unemployment stands at only 7.2% which is roughly in line with the rest of the world's rate.[footnoteRef:11] Thus, compared to the rest of the world, Oman is no better or worse in terms of employment. This is a favorable sign that the country is able to stand on its own and to weather storms such as the one the world is currently experiencing. [10: World Factbook. "Oman." CIA. Web. 25 July 2016. ] [11: World Bank. "Unemployment." Web. 25 July 2016. ]

The primary imports of Oman are machinery and transport equipment, manufactured goods, livestock, lubricants and food -- all of which adds up to $23.4 billion annually.[footnoteRef:12] While this figure may seem high, when compared to the figure that represents the country's exports, one can feel much better about Oman's economic prospects. The country's exports consist primarily of petroleum, fish, metals, textiles and re-exports -- all of which accounts for $48.4 billion.[footnoteRef:13] Thus, the country pulls in more than double what it pays for in imports. This is a healthy sign of an economy that is self-sufficient and not totally dependent upon the outside world for its livelihood. Were the country's import costs higher than its exports, then there would be an indication of trouble ahead -- but this is clearly not the case at all. The country's main export partners are China, Japan, the UAE, South Korea, Thailand and Singapore. China accounts for 31.9% of all Oman's exports, with Japan second at 12.95 and the UAE and South Korea third and fourth with 10% respectively.[footnoteRef:14] In 2014, Oman recorded a Current Account surplus of 1559 OMR million, which represents the sum of the balance of trade, net income, and net transfer payments.[footnoteRef:15] [12: World Factbook. "Oman." CIA. Web. 25 July 2016. ] [13: World Factbook. "Oman." CIA. Web. 25 July 2016. ] [14: World Factbook. "Oman Export Partners." CIA. Web. 25 July 2016. ] [15: "Oman Current Account." Trading Economics. Web. 25 July 2016. ]

The current exchange rate for the Omani Rial to the USD is 1:2.6, or 1 Omani Rial equals 2.60 USD. This rate has remained virtually unchanged for the past five years and the future exchange rate is not expected to diverge by many basis points from this current rate. This shows a stable relationship and stability in the country's currency. In other words, there is no dilution occurring in Oman and the country's currency is confidently backed.

The Oman Stock Market MSM 30 Index currently trades within a range of 5700 and 6000 and is forecasted to be emerging from a bottoming out pattern established earlier this year. It is currently establishing an upward swing pattern and could break out into a bull market pattern if upward moment continues. It is forecasted that the upward swing will continue in the coming years, so long as no major or catastrophic event or catalyst plunges the world's markets into turmoil.[footnoteRef:16] In the past year, the market has fluctuated from highs to lows, keeping step with the global market indexes (highs in 2015, lows in 2016). While the U.S. market has made new highs recently, the Oman market has not climbed back so highly and currently is in the middle of its range in the past year. This indicates that the country's market is neither overpriced nor underpriced, but at a reasonable price, which expresses stability and calm from the perspective of a market observer. In short, the Oman market is not as dominated by fear and greed as other markets, which are more directed by irrational excesses in both directions -- and this is a further good sign of Oman's economic stability. [16: "Oman Stock Market." Trading Economics. Web. 25 July 2016. ]

Recent News

Oman's bond offering made recent headlines around the world, as it was an event the likes of which has not transpired in the country in two decades. The resounding success of the bond offering showed that Oman is situated very well among creditors and investors and that its economic prospects are very good.

Oman has also been in the news in recent months as a result of the decline in oil prices -- and with the world's oil ministers meeting to discuss possible reductions in production so as to cut back on the oil glut that is keeping prices low for one and all, Oman's own Oil Minister Mohammad bin Hamad al-Rumhy expressed supportive and positive sentiment regarding the country's willingness to slash its oil production, so long as all other producers did as well.[footnoteRef:17] This shows that Oman is willing to be a team player in order to help out the larger, global economy by putting a cap on oil production and allowing the price of oil per barrel to climb back to a level that is profitable for all oil producing countries. Peak oil production, at these prices, can only add to the overall negative effects of the global economy, so this was a rational expression by Oman's Oil Minister; at the same time, it was also very practical and political: it ensured that Oman would not voluntarily freeze its own output if other countries were not going to do the same -- for why should Oman cap its production and lose market share if it would only benefit other countries? Oman must look after itself as well, and its Oil Minister very wisely ensured that it would and will. [17: Summer Said, "UAE Minister: Iran can pump oil if it wants, but it will worsen global glut." The Wall Street Journal, 28 Jan 2016. Web. 25 July 2016. ]

Oman's stable economy and positive economic prospects and outlook for the coming years is mirrored in its cultural achievements and progress, as noted by The Economist. Oman, in fact, opened an opera house in Muscat, its very own capital, just five years ago -- and it represents in style the grandeur of the 16th century Italian opera house, a feat that indicates just how culturally expansive and economically strong Oman is at this time.[footnoteRef:18] While other countries such as Saudi Arabia are having to cut jobs and put a hold on projects, like the rail line that was meant to stretch from Oman to UAE and Saudi Arabia and Bahrain, Oman continues to grow and develop.[footnoteRef:19] [18: "Opera's Middle Eastern conquests." The Economist, 16 June 2016. Web. 25 July 2016. ] [19: Simon Kerr, "Construction groups hit by Gulf's economic slowdown." Financial Times, 4 May 2016. Web. 25 July 2016. ]

While visitors and tourists might find Oman's range of terrain to be challenging and at times dramatic, depending upon the visitor's ability to prepare for various types of weather and environment, the people of Oman are aware of the great wonders of its region and of the country's ability to build and grow in a variety of ways that indicate the great soul of Oman and the great robustness of its character.[footnoteRef:20] Nonetheless, as The New York Times writers show, Oman is a country that is inviting, that is full of marvels (as the pictures from the writers' tour show) and that is a place that welcomes the world to see just what it is made of. Oman is not a country that is hurting or that is afraid to open its doors -- even in a time when the entire rest of the world is threatening to close its borders out of fear of attacks. Oman stays open -- because Oman is strong, stable and in control of itself. It has not disrespected the laws of government and of economics as so many other parts of the world have done. It has remained accountable and trustworthy, as its recent bond offering indicates. It is a nation that is ready and willing to please in a cultured and cultivated manner, as the opening of its opera house in the country's capital shows. [20: Mark Vanhoenacker, "Dunes and Drama on a Drive Through Oman." The New York Times, 13 Feb 2016. Web. 25 July 2016. ]

Concluding Remarks

Oman has built itself up in recent years and developed a healthy, functioning, stable economy that has the respect of the Western ratings agencies, such as Moody's and Standard and Poor's. It does depend heavily upon oil exports to nations around the world -- but many countries depend upon oil as a source of revenue, and this should not be something that is viewed as a negative or a strike against Oman. On the other hand, the country should be proud of its ability to climb so highly so quickly and to have developed so much based on such a niche market. Oman is poised to grow still more in the future, so long as oil prices do rebound and the stakes of the entire world transform for the better. But for this to happen there has to be some working together among the leading nations of the world. For, as it stands, we are all truly in this together -- and it is not a matter of one country standing against another or of Oman competing with the OPEC nations or against its neighbors for market share. No, as Oman's Oil Minister showed and expressed this year, Oman is ready and willing to do its part to make the world better and economically stronger with regard to freezing oil production. Should all the oil producing countries of the world come to an agreement to put a cap on oil productions, Oman will be right there with them, supporting in global solidarity the effort to benefit one and all, and allow the oil glut to reduce and oil prices to rise once more -- so that all oil producing countries can benefit.

Oman is not a country that is out to exploit its situation or to gain unfair advantage over others. It has a natural resource that developed and developing worlds rely upon for industrial purposes -- this is petroleum. It can use this petroleum to extend its own influence in the world and to better its own domestic situation, as its rise in GDP over the past thirty years has amply shown. This is one of Oman's treasures. It is not a weapon that the country wishes to use, nor a weakness that the country's enemies might try to imagine that it is. Oman's ability to export oil is not dependent upon the price of oil being at $100 or $50 or even $20 -- Oman is able to continue production at any cost, because it believes in doing what it must to maintain its stability.