Oman

OMAN is a middle-income economy. It has 5.50bn barrels of proven crude oil reserves which represents one of the most important segments of the economy.

However, the government is pursuing diversification and its Oman Vision 2020 includes expansion of industry and greater private-sector participation in the economic development.

The Oman government has been pushing structural reforms improving trade relations while supporting small and medium-sized enterprises and foreign investors to spark growth in the non-oil sector.

The focus is on manufacturing, mining, transport and tourism. Hit by a cash crunch because of a sharp drop in oil prices, Oman has opted for austerity measures.

In 2016, private and public investment spending has dried up and the value of awarded projects halved to $7bn. The growth remained modest at 3.3pc in 2015 but slowed to 1.8pc in 2016, according to CI Ratings.

The economy is showing signs of further slowing on the back of fiscal tightening. Consumer confidence is weakening. The market conditions have turned bearish. In the 2017 budget, the government has projected GDP growth of just 2pc on the back of expected improvements in oil prices.

The World Bank has projected a 2.9pc growth in 2017.

The persistence of low oil prices is projected to produce substantial deficits through 2018. The government ran near-balanced budgets from 2010 to 2013.

In 2014, however, the effects of sinking oil prices led to a fiscal deficit equaling to 3.4pc of GDP. In 2015, as oil prices hit a new low, the deficit reached 18.8pc of GDP. The deficit is estimated to have further widened to 21.7pc of GDP in 2016.

The 2017 budget envisages an increase in revenue and decrease in expenditure over the 2016. Fitch Ratings expect deficits to narrow as oil prices recover and fiscal measures take effect, to 14.4pc of GDP in 2017 which is in line with NBK 2017 forecast. For 2018, the NBK projection is for a budget deficit of 9pc against Fitch Ratings 6.4pc.

Due to increasing budget deficit, the government’s gross financing needs increased to around 25pc in 2016 from just two-percent of GDP in 2014. The budget predicts net foreign borrowings to rise by 133pc, making this the main financing tool, in covering estimated deficit for 2017.

According to a recent report by the Omani National Centre of Statistics, $3.9bn were withdrawn from fiscal reserves for financing purposes in 2016. The rest of the deficit was financed through borrowings.

This year, Oman plans to plug the projected deficit by borrowing $5.5bn from international markets and $1.04bn from domestic markets, and $1.3bn from drawing down its own financial reserves.

According to an international report and a number of global analysts, the government is poised to implement a value-added tax in 2018. Deficit cuts, reducing dependence on oil and investment in infrastructure will all play their part in propelling Oman economy to rebound. And increased revenue from the new VAT and recovering oil prices can also see government investment spending pick up in 2018.

Qatar

QATAR is the world’s top exporter of liquefied natural gas (LNG) with the third-largest proven natural gas reserves in the world, estimated at 872tr cu feet. Its indigenous population is among the wealthiest in the world, with the country reporting a per capita GDP in excess of $100,000.

While gas and oil exports account for a majority share of GDP, non-hydrocarbons sectors have expanded rapidly in recent years. Over the past half-decade Qatar has posted robust economic growth on the back of strong hydrocarbons revenues, state-led infrastructure development and a rapidly maturing financial sector.

In the past five years, however, Qatar has seen a declining GDP growth trend though it was one of the fastest-growing economies, posting average annual GDP growth of 8.6pc during 2010-2015. 

Since 2016, the country has been pushed into austerity measures in an effort to stabilise its finances. Given the integration of Qatar in the global economy and its reliance on oil and natural gas as primary sources of revenue, the performance of its economy will be negatively affected by the fluctuations of the global market.

According to Qatar Economic Outlook 2016-2018, the GDP is witnessing a significant decline due to the economic policy pursued by the Qatari government in light of the collapse of oil prices. Real GDP grew at 3.7pc in 2015 via large investment spending.

The economy closed 2016 on a mixed note with economic growth for the year decelerating to 3.2pc, weighed down by the effects of the oil price downturn.

A QNB Group’s report reveals strong growth based on non-hydrocarbon investment spending, predicting real GDP growth to accelerate to 3.8pc in 2017.

The bank sees further rise in growth to 4.1pc in 2018 after weathering the impact of low oil prices, besides ramp-up in investment spending and initial gas production from the Barzan gas project.

The economy is likely to make rapid advances in non-hydrocarbon and service sectors. It is estimated to grow to $275.5bn at the current price by 2018.

For at least 15 years leading up to 2010, the country’s economy was dominated by the energy sector. In 2010, hydrocarbons-related GDP posted growth of more than 28pc, while the non-hydrocarbons economy rose by just under 9pc.

The government’s diversification efforts and volatility in global energy markets have brought robust expansion in the non-hydrocarbons economy. According to the Qatari Ministry of Development Planning and Statistics, the government expects to run a budget deficit for at least three years. In 2016, fiscal deficit was 9.1pc of GDP, the first deficit in 15 years. The budget 2017 expects $7.8bn deficit against $12.8bn in 2016.

Despite strong reserves build-up, the government will continue to cover 2017 shortfall by local and international debt issues and avoid putting pressure on the domestic banking sector.

Published in Dawn, Business & Finance weekly, February 27th, 2017