Oman Major Report PDF

Central Bank of Oman
Mid-Year Review
2013
of
the
Omani Economy
2014
January 2015
January 2014
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Contents
Foreword ......................................................................................................... 1
Overview and Macroeconomic Outlook .......................................................... 3
I. Global Economic Situation...................................................................... 13
II.
Domestic Output Growth ..................................................................... 17
III.
Price Situation ...................................................................................... 20
IV.
Fiscal Position ...................................................................................... 24
V.
Monetary and Banking Conditions ....................................................... 31
VI.
Financial Markets ................................................................................. 43
VII. Foreign Trade and Balance of Payments .............................................. 48

Appendix Tables ........................................................................................... 52
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iii
Foreword
The macroeconomic situation in the Sultanate has remained favorable in recent

years. The major drivers of growth in Oman in the recent years have been increase
in the price of crude oil in the international markets and sustained domestic demand,
mainly supported by large public expenditure and accommodative monetary policy
pursued by the Central Bank of Oman. While growth momentum has been sustained,
inflation was also fairly contained in the Sultanate. Monetary policy continue to be
formulated against the backdrop of easy liquidity conditions, lower inflation, low
Rial Omani interest rates on deposits and surpluses in fiscal and balance of payment
positions. The higher oil prices and increase in production resulted in comfortable
fiscal and external balance of payments situation. However, the current phase of
lower international oil prices presents enormous challenges to the Omani economy.
Against this backdrop, the Mid-Year Review of the Omani Economy for 2014
covers developments related to global economy, output growth, price situation,
fiscal position, monetary and banking conditions, financial markets, foreign trade
and balance of payments and macroeconomic outlook during the year so far.
Feedback on the Mid-Year Review of the Omani Economy 2014 may be sent to
ERSD@cbo.gov.om. On the basis of the feedback likely to be received from the
users, the coverage of the publication would be widened. We hope that the endeavor
of the Research Department in bringing out this review regularly by December every
year is likely to benefit the general public as well as other stakeholders.
Hamood Sangour Al-Zadjali

Executive President,
Central Bank of Oman
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Mid-Year Review of the Omani Economy 2014

Overview and Macroeconomic Outlook
Overview
Global economic growth scenario has changed with signs of robust recovery in some
advanced economies (AEs) and moderating economic growth in the emerging
markets economies (EMEs). The International Monetary Fund (IMF) in its January
2015 World Economic Outlook (WEO) update, projects global growth to remain at
3.3 per cent in 2014, the same growth recorded in 2013. The advanced economies
(AEs) are projected to grow at 1.8 per cent in 2014 as compared with 1.3 per cent in
2013. GDP growth for Emerging Market and Developing Economies (EMDEs) are
projected at 4.4 per cent in 2014, marginally lower than 4.7 per cent in 2013. The
growth rate of countries in the Gulf Cooperation Council (GCC) is expected to grow
by 4.4 percent in 2014 as compared to 4.1 percent in 2013. International oil prices
have fallen substantially in the recent months on abundant supply, slowing demand
growth, a strong US dollar and disagreement among OPEC members to cut down
supply.
The macroeconomic situation in the Sultanate has remained favorable in recent

years. After a negative growth in 2009 as a fall out of the global financial crisis, the
average growth rate of Gross Domestic Product (GDP) at current price during the
three years from 2010 to 2012 was around 16.5 per cent. In the subsequent year
2013, the GDP at current price grew at a modest pace of 2.4 percent primarily due to
weaker crude oil prices in the global market. The Sultanates nominal GDP grew by
5.2 percent in the first three quarters (January-September) of 2014 over the same
period in 2013. The petroleum sector Nominal GDP increased marginally by 1.4
percent as Omani crude oil price increased by 0.9 percent. In contrast, NonINTERNAL
petroleum sector Nominal GDP grew by 8.2 percent. The Sultanates crude oil
production during the first three quarters of 2014 (January-September) increased by
0.9 percent to 258.8 million barrels from 256.5 million barrels during the same
period in 2013. The daily average production of crude oil increased to 947.9
thousand barrels during January-September 2014 from 939.4 thousand barrels
during January-September 2013. The international crude oil prices averaged US$
105.8 per barrel during the January-September 2014 as compared to US$ 104.9 per
barrel during January-September 2013.
While growth momentum has been sustained, inflation was also fairly contained in
the Sultanate with the average inflation based on CPI for the Sultanate being lower
at 3.4 percent during the three year period 2010 to 2012. The year 2013 continued to
witness low inflation with the average inflation registering an increase of only 1.1
percent. The average inflation based on CPI for the Sultanate stood lower at 1.0
percent during the January-September 2014 as compared to 1.1 percent in 2013.
The Omani crude oil fetched average price of US$ 98.7 per barrel during the last
four years from 2010 to 2013. During the same period, oil production in the
Sultanate increased by an average of 3.8 percent, while oil exports increased by an
average rate of 5.9 percent. The higher oil prices and increase in production resulted
in comfortable fiscal situation which helped the Government and the Central Bank
of Oman (CBO) to build foreign assets as well as large domestic deposits. The fiscal
surplus during January-September 2014 stood at RO 136.1 million compared to a
fiscal surplus of RO 339.9 million during January-September 2013. The external
sector continued to remain in surplus in Oman with a current account surplus of RO
3.0 billion (10.2 percent of GDP) during 2012 and RO 2.0 billion during 2013 (6.5
percent of GDP). The balance of payments situation remains comfortable with
current account surplus during first two quarters of 2014.
Monetary policy in the recent period was formulated against the backdrop of easy
liquidity conditions, lower inflation, low Rial Omani interest rates on deposits and
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surpluses in fiscal and balance of payment positions. The evolution of monetary

aggregates in Oman has been consistent with the accommodative policy stance of
CBO aimed at ensuring adequate liquidity in the system, maintaining orderly
conditions in the markets and supporting faster growth. Reflecting sustained growth
of the Omani economy, broad money supply M2 registered an annual increase of 8.5
percent, while total credit expanded by 6.0 percent during 2013. Year on Year,
broad money supply M2 registered an annual increase of 15.1 percent in September
2014 as compared to a rise of 4.6 percent during the same period last year. Year-onYear, total credit expanded by 8.8 in September 2014 as compared to 8.7 percent
during the same period of last year. Reflecting comfortable liquidity condition,
domestic interest rates softened considerably.
Omans banking sector comprises 7 Local Commercial banks, 9 foreign banks, 2

specialized banks and 2 full-fledged Islamic banks together with 6 local commercial
banks operating separate Islamic windows for banking operations. As at end 2013,
Commercial banks had 493 branches and 1100 ATMs. The financial health of banks
in terms of assets quality, provision coverage, capital adequacy and profitability
remained strong. The balance sheet of commercial banks further strengthened in
2014 due to the robust growth in both deposits and credit.
Total assets of
commercial banks increased by 9.5 percent to RO 24.6 billion in September 2014.

A notable development and an important milestone in the banking sector in the
recent period was the introduction of Islamic Banking in Oman, which would
diversify banking services and promote financial inclusion.
Outlook
In its January 2015 update of World Economic Outlook (WEO), the IMF expects the
growth to strengthen in 2015 to 3.5 percent. It expects that global growth will
receive a boost from lower oil prices, but this will also be offset by negative factors
including investment weakness. In AEs, raising growth will require continued
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support from monetary policy and fiscal adjustment attuned in pace and composition
to supporting both the recovery and long-term growth. In a number of economies, an
increase in public infrastructure investment can support demand in the short-term
and help boost potential output in the medium-term. The strongest rebound in
growth is expected in the US, whereas the crisis legacy brakes would ease only
slowly in the euro area, and growth in Japan would remain modest.
Among other countries, including in other Asian AEs, Canada, and the UK growth is
projected to be stronger. Growth in EMEs is projected to increase modestly in the
second half of 2014 and into 2015, supported by stronger domestic demand as also
due to new measures to support activity (notably in China) as well as a recovery in
external demand associated with faster growth in AEs. As in the past years, EMEs
would continue to account for the major share of global growth even at market
exchange rates. In EMEs, the scope for macroeconomic policies to support growth,
if needed, varies across countries and regions, but space is limited in countries with
external vulnerabilities.
In the near future, co-ordination of policy and communication challenges stemming
from normalization of monetary policy will become more complex than during the
past tightening cycles, given an unconventional starting point with policy rates near
zero and large central bank balance sheets. Effects on spillover-recipient countries
would depend on the extent of their domestic vulnerabilities as well as on the
smoothness of the external normalization process. This sensitization of systemically
important countries might also enhance the necessary global cooperation in the
conduct of their macroeconomic policies (World Economic Outlook, IMF, 2014).
As the international oil prices continue to fall, it is expected that there will be
sustained drop in oil revenues in GCC countries and the fiscal buffers available in
these countries will be eroded. The GCC countries will have to undertake several
policy adjustments to cope with lower oil prices. It is also expected the current
account balance will turn negative for some of these countries. The IMF expects
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inflation to remain moderate in most GCC countries because of decreasing

international commodity prices.
Among all the GCC countries, Oman is likely to be affected more at these levels of
lower oil prices and will have to face several challenges. The economy of Oman
relies on oil as the main source of export and fiscal revenues. Oil and gas revenues
as a percentage of GDP stood around 40 percent in 2013 and accounted for around
86 percent of government revenues and about 66 percent of total merchandise
exports. The high reliance on oil revenues means that the economy is exposed to
developments in the global oil market.
According to the IMF, Omans fiscal
breakeven oil price is among the highest in the region. Hydrocarbon prices are
volatile and a key source of macroeconomic instability. The diversification of the
economy would reduce exposure of the economies to volatility and uncertainties in
the global oil market.
The Sultanates fiscal trend in recent years has been characterized by rising public
expenditure and more so in the areas of current expenditure and expenditure on
participation and other expenses, a significant share of which consists of subsidies to
electricity and petroleum products. Favorable crude oil prices have allowed for fiscal
surpluses in recent years, which cannot be sustained in the medium or long term
given the present trend in oil prices. The fact that the Sultanates fiscal position is
still robust, potential risks in the future associated with the lower oil prices provides
an opportunity to start introducing meaningful fiscal reforms. Oman has the
resilience and inner strength to withstand lower oil prices and sustain its growth
process. For example, during the recent global crisis, the average price of Omani
crude oil declined to US $ 56.7 per barrel in 2009 from US $101.1 per barrel in
2008, an equivalent decline of 44 percent. As a result, total government revenues
declined by about 12 percent with oil revenues declining by a similar rate while
fiscal balance registered a deficit of RO 680.3 million. It is worth noting that
Sultanate did not face any major downside risk during that phase of lower oil prices.
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Thus, the Government should take this as an opportunity to reform some of the
structural impediments of the economy at this juncture. It is expected that
meaningful fiscal reforms based on efficient and effective resources allocation
would benefit the economy even further. On the revenues side the government
could improve its tax collection and customs revenues through effective
infrastructure, trainings and possibly introduction of new taxes. On the expenditure
side, controlling expenditure on subsidies is important. Moreover, the objective
should be to rein current expenditure, which is mainly in the form of current
consumption. It has to be noted that increases in current expenditure are harder to
reverse, which could lead to fiscal vulnerability when oil prices fall. Again, the
spending pattern of the Government as the year progresses tends to be highly
correlated with the oil prices. The rationalization and prioritization of government
expenditure through mandated expenditure limit under the approved budget could be
appropriate.
Moreover, on the financing part, Government could finance potential fiscal deficits
by expanding its long term borrowing in the domestic market through government
bonds/Sukuk. Borrowing domestically would also help financial deepening,
developing a yield curve and making lending and borrowing more efficient. The
Government could also re-introduce short-term borrowing through treasury bills of
different maturities. Borrowing from the domestic market would minimize or
eliminate the need to draw from reserve funds as a mean to finance current account
deficit. Taking advantage of countrys good international credit rating, Government
could also consider international borrowing more to finance its deficits rather than
drawing from reserves.
With lower oil prices, the balance of payments situation of the Sultanate would be
affected. Promoting and diversifying non-oil exports vigorously is one option to
increase exports. Developing large scale tourism and attracting more tourists could
be an option to reduce imbalances in services accounts of balance of payments.
Moreover, Oman has also been focusing to attract foreign investment in industries
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which could use local raw materials, employ Omanis and promote traditional
industries. Thus, improving foreign investment scenario could help Oman improving
its external position in the wake of lower oil prices.
The Central Bank of Oman plays an important role in maintaining financial stability,
pursuing appropriate monetary policies, developing financial markets and providing
an environment aimed at ensuring exchange rate stability. The CBO will continue to
enhance the role of the banking sector in the economic development by encouraging
credit growth to productive sectors including small and medium enterprises (SMEs)
and promote saving behavior among the population. The regulatory outlook will aim
at increasing the role of the private sector in the national economy by stimulating
domestic and foreign investment for the growth of the economy and Omans
financial sector will play a leading role in achieving this objective.
Islamic banking is expected to assume an important position in the financial sector
of the Sultanate. It is expected that Islamic banks will complement the current
conventional banking in promoting growth in the economy and will diversify banking
services and augment financial inclusion. There is no doubt that financing Small and
medium enterprises (SMEs) is a challenge, but given the concerted efforts of the
Government and the CBO, it is expected that banks will be able to turn the lending
option to SMEs commercially attractive so that that there is more incentive on the
part of the banks to lend to this sector. There are also efforts in terms of capacity
building of prospective entrepreneurs, identifying key areas for SME finance,
facilitating public-private cooperation and improving upon forward and backward
linkages of these entities.
Given high real economic growth averaging over 5 percent since 2007 and a
supportive demographic profile of the population in Oman, it is expected that the
demand for banking products will continue to increase. It is interesting to note that
Oman has one of the youngest population with around three-fourth of total
population being in economically active group (15-64) and more than two-third of
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population below 30 years, which augurs well for the future growth prospects. Thus,
it is expected that there will be harmonious growth of both conventional and Islamic
banking. The market size as a whole has immense prospects for all given the pace of
economic growth of the country and various initiatives of the Government and
private sector for new business investments, diversification of the economy,
financing large projects, development of small and medium enterprises (SMEs) etc.
The development of financial markets in the Sultanate is a critical element in
development of financial sector. More so in the environment of lower oil prices
when the Government needs to finance its fiscal deficit through borrowings from
domestic and international markets, apart from drawing down on its reserves. Thus,
the financial markets should become more efficient, stable and healthy to enable the
Government and the banks to be more proactive in raising resources from the
market. In the State General Budget 2015, the Government proposes to finance the
budget deficit by issuing long-term Islamic bonds and instruments so as to activate
the domestic capital market. The financial markets should be able to channelize
financing in an efficient manner at lower cost. In order to be able to carry on this
important task, the markets should be deeper, liquid and vibrant. There is also a need
to enhance linkages among the money, government securities and foreign exchange
markets.
In the current situation, addressing the challenges emanating from lower oil prices
should be the matter of priority and as such needs to be tackled from expenditure as
well as revenues sides with relevant policies in order to create fiscal space for the
government and promote fiscal sustainability in the future. The overall objective
during the period of low oil prices could be to undertake systematic and coordinated
policy responses. There should be proper coordination and consensus among the
concerned authorities in formulating the reform measures as the situation warrants.
The objective should be to avoid any slowdown in the growth process and continue
with the diversification process. Moreover, if proper mix of financing options is
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used, there will not be much problem in financing higher fiscal deficits envisaged
under the scenario of lower oil prices.
The Government is already prioritizing reforms aimed at diversification, broadening
and rationalization of revenues. There is an attempt by the Government in the State
General Budget 2015 to rationalize and control Government spending to sustainable
limits and at the same time enhance the sources of non-oil revenues. The Budget
also focuses on reducing the dependence on oil through enhancing the contribution
of promising sectors like tourism, agriculture and fisheries. The State General
Budget 2015 endeavors to continue the investment spending, implement the
development projects as per their schedule and raise the efficiency and productivity
of oil and gas sector. The State General Budget 2015 envisages that with continued
of investment spending, the Omani economy will be able to grow in real terms by
5.0 percent during 2015, supported by non-oil sector, which is expected to grow by
5.5 percent.
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Mid-Year Review of the Omani Economy 2014

I.
Global Economic Situation
Global growth recovery though uneven, continues despite few setbacks in the form
of growth halt in the euro area, lackluster domestic demand in the emerging market
economies (EMEs) and other geopolitical tensions. In the advanced economies
(AEs), the legacies of the pre-crisis boom and the subsequent crisis, including high
private and public debt, still cast a shadow on the recovery. The EMEs are adjusting
to rates of economic growth lower than those reached in the pre-crisis boom and the
post-crisis recovery. Overall, the pace of recovery is becoming more country
specific. The International Monetary Fund (IMF) in its January 2015 update of
World Economic Outlook (WEO), projects global growth to remain at 3.3 per cent
in 2014, the same growth recorded in 2013. The forecast for global growth for 2015
is at 3.5 per cent, lower than projected in October 2014. The AEs are projected to
grow at 1.8 per cent in 2014 as compared with 1.3 per cent in 2013. GDP growth for
Emerging Market and Developing Economies (EMDEs) are projected at 4.4 per cent
in 2014, marginally lower than 4.7 per cent in 2013. The growth rate of countries in
the Gulf Cooperation Council (GCC) is expected to recover to 4.5 percent in 2015 as
compared to 4.4 percent in 2014 and 4.1 percent in 2013. Inflation in the GCC
countries continued to remain low at around 2.8 percent in 2014 and is expected to
rise marginally to 3.1 percent in 2015 (Table 1).
The recovery in the United States is broadening on the back of stronger domestic
consumption, rising investment and industrial activity. Real GDP increased at a
healthy annual rate of 5.0 percent in the third quarter of 2014 as compared to 4.6
percent in the second quarter. Notwithstanding the cessation of asset purchases by
the US Fed, financial markets have remained generally buoyant on abundant
liquidity stemming from accommodative monetary policies in the advanced
economies (AEs). The search for yield has driven global equity markets to new
highs, with investors shunning gold and commodities. Capital flows to EMEs
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recovered from market turbulence in the first half of October 2014, although some
discrimination on the basis of fundamentals is becoming discernible.
Table 1: Global Economic: Key Indicators
(Percent)
2015*
2012
2013
2014 *
1. World Output (Growth Rate)

Advanced Economies
United States
Euro Area
Japan
United Kingdom
Emerging and Developing Economies
Emerging and Developing Asia
China
India
Latin America and the Caribbean
Middle East and North Africa
GCC Countries
2. World Trade Volume (goods and services)
3.4
1.2
2.3
-0.7
1.5
0.3
5.1
6.7
7.7
4.7
2.9
4.8
5.8
2.9
3.3
1.3
2.2
-0.5
1.6
1.7
4.7
6.6
7.8
5.0
2.8
2.3
4.1
3.4
3.3
1.8
2.4
0.8
0.1
2.6
4.4
6.5
7.4
5.8
1.2
2.6
4.4
3.1
3.5
2.4
3.6
1.2
0.6
2.7
4.3
6.4
6.8
6.3
1.3
3.8
4.5
3.8
3. Consumer Prices
Advanced Economies
Emerging and Developing Economies
GCC Countries
2.0
6.1
2.4
1.4
5.9
2.8
1.4
5.4
2.8
1.0
5.7
3.1
* Projection
Source: World Economic Outlook , October 2014 and January 2015 Update, IMF and Regional Economic
Outlook, Middle East and Central Asia, October, 2014
In the Euro area, headwinds from recessionary forces continue to weaken industrial
production and investment sentiment. The European Central Bank stress test results
published on October 26, 2014 revealed that only 13 banks out of 130 major banks
in the Eurozone showed shortfalls in their ability to withstand a sharp recession or
other crisis. In Japan, growth may be picking up again on the back of stronger
exports, helped in part by further quantitative and qualitative easing that has led to a
depreciation of the yen. However, Japans seasonally adjusted real GDP contracted
during the third quarter of 2014 by 1.1 per cent compared to the same quarter for the
previous year. Amidst forecasts of slowing economic growth, there is huge pressure
of public debt warranting an increase in taxes very soon. Under a huge public debt
which is already more than 200 percent of the GDP, there is not much room for big
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fiscal stimulus. The Bank of Japan has expanded its quantitative easing programme
despite failure to achieve its desired inflation target. In China, disappointing activity
and still-low inflation have prompted rate cuts by the Peoples Bank of China.
Chinas GDP is projected to decline marginally from 7.7 per cent in 2013 to 7.4 per
cent in 2014. In other major emerging market economies (EMEs), downside risks to
growth from elevated inflation, low commodity prices, deteriorating labor market
conditions and stalling domestic demand have become accentuated (World
Economic Outlook, IMF, 2014).
The growth in world trade volume continues to be low. According to the Press
Release issued by the World Trade Organization in September 2014, the world
goods and services trade volume growth will be lower at 3.1 percent in 2014 (down
from 4.7 percent forecast made in April 2014) and reduced its estimate for 2015 to
4.0 percent (from 5.3 percent estimated in April 2014). In its January 2015 update
of the World Economic Outlook, the IMF predicts that the growth in world trade
volume in goods and services will be at 3.1 percent in 2014 and 3.8 percent in 2015.
International financial markets are experiencing a generalized ebbing of volatility
since early 2014 as taper fears subsided, and a widening of the search for returns
triggered a resurgence of capital flows. The financial markets in the emerging
market economies have been buoyed by the search for yields. The latest Global
Financial Stability Report of the IMF (October 2014) notes that the EMEs appear
to be more vulnerable to shocks from advanced economies (AEs) on account of the
increased share of these economies as destination of portfolio flows from the AEs
as search for yield in the advanced economies is on the rise. Changes in the risk
perceptions, or disorderly exit from accommodative monetary policies in the AEs
are expected to cause significant capital outflows from EMEs, thereby increasing the
financial stability risks
International oil prices have fallen substantially since June 2014 when turmoil in
Iraq lifted prices to U$ 116 per barrel. Among the several reasons cited, abundant
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supply, slowing demand growth, a strong US dollar and disagreement among OPEC
members to cut down supply are major factors leading to spiral fall in oil prices.
Reduced tensions and a recovery in output from affected areas including the Islamic
Republic of Iran and Libya have also led to lower oil prices. The increase in
production of shale oil in the USA increased supply of oil in the global economy.
The demand was affected due to sluggish revival in global growth. The International
Energy Agency (IEA) has revised downwards the forecast of global oil demand for
2014 and 2015 on reduced expectations of economic growth and the weak recent
trend. On the other hand, global supply rose on higher OPEC and non-OPEC output.
In its January 2015 update of World economic Outlook, the IMF indicates that the
average crude oil price was US$ 96.3 per barrel in 2014 and based on future
markets, the assumed price for 2015 is US$ 56.7 per barrel and for 2016 is US$ 63.9
per barrel.
There are several risks which need to be taken into account while assessing the
current state of the global economy. First, risks to activity from low inflation remain
relevant for the euro area and Japan. Inflation continues to undershoot the target in
the euro area with inflation expectations further drifting down. With policy rates
close to or at the zero bound, the room to lower rates is limited and negative shocks
can lower inflation or expectations further or even push the economy into deflation.
Second, as the recovery in US economy proceeds, there are risks related to the
normalization of the US monetary policy. There is a probability that monetary
policy will need to be tightened faster than previously envisaged. Against the
backdrop of increased financial market optimism, such surprises could trigger abrupt
financial market corrections. Third, there are also near-term growth risks in China.
These risks are mainly associated with the likelihood of a more severe real estate
market correction than envisaged in the baseline. Fourth, the geopolitical risks
remain and large global spill-overs could result from developments in the Middle
East and Ukraine. Finally, for EMEs, the risk remains that the projected increase in
growth by IMF for next year (January 2015) may fail to materialize and that
potential growth is lower than currently projected.
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II.
Domestic Output Growth
According to preliminary data on national accounts, the Sultanate's Gross Domestic

Product at current prices increased by 5.2 percent during the first three quarters
(January-September) of 2014. While nominal GDP emanating from the hydrocarbon
sector registered a marginal increase of 1.4 percent, that from non-hydrocarbon
activities witnessed a growth of 8.2 percent during January-September 2014. The
fact remains that despite growth in non-petroleum activities, GDP growth behavior
still remains dependent on the oil price cycle. Lower crude oil prices which
registered a marginal increase of 0.9 percent between the two periods under review
accounted for the small increase of 1.4 percent in the petroleum sector GDP. The
contribution of the hydrocarbon sector to the nominal GDP remained
characteristically high at 48.3 percent or RO 11.4 billion over the period JanuarySeptember 2014 (Appendix Table 1 and Charts 1 and 2).
150
40
100
20
50
2009
2010
2011
Production
2012
2013 Sep.2014
120
Rate (%)
60
200
Chart 2: Nominal Growth Rate of Petroleum

and Non-Petroleum GDP & Crude Oil Prices
40
100
30
80
20
60
Growth
80
250
50
100
300
US$ / Barrel
In Million Barrels
350
120
10
40
-10
2010
2011
2012
2013
Sep2014
20
US $ per barrel
Chart 1: Oil Production and Prices
400
Petroleum GDP
Non-Petroleum GDP
Average Crude Oil Price (right scale)
Price (right scale)
Source: Ministry of Oil and Gas and National Center for Statistics and Information.
The aggregate oil production for the Sultanate stood at 258.8 million barrels during
January-September 2014 expanding by 0.9 percent. Omani average crude oil price in
the global market averaged US$ 105.8 per barrel during January-September 2014, or
0.9 higher than similar period last year (Table 2). During January-September 2014,
the daily average production of crude oil in the Sultanate increased to 947.9
thousand barrels from 939.4 thousand barrels in January-September 2013. The oil
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sector continued to remain the major contributor to the overall petroleum sector with
45.2 percent of value addition to the nominal GDP in contrast to a modest 3.2
percent value addition from the natural gas sector.
Table 2: Oil Prices, Production & Exports

Year
Oil Prices
(US$ per Barrel)
%
Change
Oil Production
(Million Barrels)
%
Change
Oil Exports
(Million Barrels)
%
Change
101.1
56.7
76.6
103.0
109.6
105.5
55.1
-43.9
35.2
34.3
6.5
-3.7
277.0
296.6
315.6
323.0
336.2
343.8
6.8
7.1
6.4
2.4
4.1
2.3
216.7
242.9
268.7
266.4
279.8
304.2
-2.4
12.1
10.6
-0.8
5.0
8.7
106.0
105.4
105.8
-1.0
-1.1
0.9
85.4
170.8
258.8
1.0
1.0
0.9
71.2
143.9
220.0
-4.9
-5.2
-5.5
2008
2009
2010
2011
2012
2013
2014
Jan-Mar
Jan-June
Jan-Sept
Source: Ministry of Oil and Gas and National Center for Statistics & Information
Analyzing the trend in economic diversification, the period January-September 2014

pointed to a reversal insofar as the industrial sector is concerned as it contracted by
3.5 percent from similar period in 2013. Among the non-petroleum industrial
activities, manufacturing sector declined by 8.6 percent. Despite registered increase
in other major non-petroleum industrial sectors such as electricity and water
supply and construction which grew by 8.4 percent and 2.5 percent, respectively,
they fell short of lifting the overall industrial activities. The Government has been
taking initiatives to diversify the economy, promote business environment in the
Sultanate, increase employment opportunities and attract local and foreign
investment.
Unlike the downward trend witnessed under the industrial sector recently, the
services sector grew by 12.6 percent between the two periods under review. Key
services sector such as wholesale and retail trade grew at 2.2 percent, hotels and
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restaurants at 8.5 percent, transport and communications at 7.0 percent, public

administration and defense at 14.2 percent, financial intermediaries at 10.9 percent,
and real estate services at 6.3 percent. The Government has been pursuing the policy
of augmenting domestic supply of efficient services at competitive prices. The
Eighth Five-Year Development Plan (2011-15) emphasizes the development of
software and tourism industries, among others.
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19
III.
Price Situation
The price situation in the Sultanate of Oman continued to remain comfortable with
inflation rate hovering around 1 percent since 2013. Annual inflation rate measured
by movement in the average CPI for the Sultanate stood at 1.1 percent in 2013 as
compared to 2.9 percent in 2012. During the first three quarters of 2014 (JanuarySeptember), the average inflation based on CPI (base 2012) was lower at 1.0 percent
(Chart 3). The CBO and the Government have been keeping a close watch on the
price situation and taking necessary measures as and when necessary. There has
been effort towards increasing market awareness of consumers, proper monitoring
of supply situations and diversifying imports.
Chart 3: Inflation Rate (CPI for the Sultanate)
1.5
a) Average Inflation Rate
2.0
1.5
Percent
1.0
Percent
b) Point-to-Point Inflation Rate
0.5
1.0
0.5
0.0
0.0
2013
2014
2013
2014
Source: National Center for Statistics and Information.
Commodity-wise, inflation rate remained low for most of the commodities during
January-September 2014 except in case of Furnishings, household equipment and
routing household maintenance (5.4 percent), health (5.1 percent) and education
(6.3 percent). (Appendix Table 2 and Table 3). On the other hand, there were decline
in prices of groups like transport and communication. There was also marginal
decline in prices of groups clothing and footwear and recreation and culture.
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Table 3: Sultanate Consumer Price Index: Annual Percent Change

(Base 2012=100)
Items of Consumption
Weights
1 Food,& non- alcoholic beverages
(Percent)
Sep
2013
2014@
2005
2010
2011
2012
23.903
4.4
1.8
4.6
2.1
2.8
2.1
2 Tobacco
0.125
-0.1
0.9
7.8
8.3
1.5
0.5
3 Clothing & Footwear
5.961
0.7
0.0
0.7
2.7
1.8
-0.0
4 Housing, Water, Electricity, Gas

and Other Fuels
26.477
0.0
4.5
2.9
2.1
0.5
1.2
5 Furnishings, household equipment

& routing household maintenance
6 Health
3.787
0.3
12.8
2.9
4.4
2.2
5.4
1.161
0.1
0.6
2.1
2.4
1.5
5.1
7 Transport
19.167
4.3
3.5
2.3
2.7
0.5
-0.7
8 Communication
5.633
-9.7
0.3
-2.0
-3.8
-2.3
-1.5
9 Recreation and Culture
1.135
-0.7
1.7
0.4
2.5
-1.1
-0.1
10 Education
1.368
1.9
4.7
4.0
17.2
4.2
6.3
11 Restaurants and Hotels
6.098
0.1
4.3
2.9
1.1
1.1
1.2
12 Miscellaneous goods and services
5.185
4.0
14.6
16.3
5.5
0.3
0.0
GENERAL PRICE INDEX
100.0
1.9
3.3
4.1
2.9
1.1
1.0
@: Data pertains to January-September, 2014.

In 2013 and the first three quarters of 2014 (January-September), though the overall
inflation remained low, the contribution of the group Foods & non-alcoholic
beverages to overall inflation had been high and explained around 45.6 percent of
increase in prices during the period January-September, 2014. Also, the contribution
of the two groups Housing, water, electricity, gas and other fuels and furnishing,
household equipment and routing housing maintenance to overall inflation have
increased to 31.3 percent and 18.9 percent, respectively, during January-September,
2014. Overall, these three commodities have contributed 95.8 percent of increase in
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21
inflation during the first three quarters of 2014 (Table 4). On the other hand,
contribution to inflation of the groups transport and communication were
negative during January-September 2014 offsetting the increase in prices of other
commodities. Thus, policy makers will have to devote attention in controlling the
prices of three groups -Foods & non-alcoholic beverages; Housing, water,
electricity, gas and other fuels; and furnishing, household equipment and routing
housing maintenance.
Table 4: CPI Sultanate (Base 2012=100): Weighted Contribution in Percent
(Percent)
Weights
2005
2010
2011
2012
2013 2014*
1 Foods& non-alcoholic beverages
23.903
49.6
13.5
27.0
17.9
60.8
45.6
2 Tobacco
0.125
0.0
0.0
0.2
0.3
0.2
0.0
5.961
2.8
0.0
1.1
5.5
9.8
0.0
4 Housing, water, electricity, gas

and other fuels
26.477
0.0
35.3
19.5
19.9
12.0
31.3
5 Furnishings, household equipment

& routing household maintenance
3.787
7.6
18.9
6 Health
1.161
0.1
0.2
0.6
1.0
1.6
5.5
7 Transport
19.167
47.2
20.4
11.1
17.8
8.7
-12.2
8 Communication
5.633
-62.0
0.6
-3.1
-8.0
-11.8
-7.2
9 Recreation & Culture
1.135
-0.5
0.6
0.1
1.0
-1.1
-0.2
10 Education
1.368
1.3
1.7
1.2
7.2
5.2
8.1
11 Restaurants and Hotels
6.098
0.5
8.1
4.5
2.4
6.1
6.7
12 Miscellaneous and Services
5.185
7.2
18.0
18.1
9.6
1.4
0.5
General Index
100.0
100.0
100.0
100.0
100.0
100.0
100.0
0.6
0.8
2.7
5.7
@: Data pertains to January-September, 2014.

Global commodity prices continued to fall in 2014. There has been substantial
decline in international crude oil prices in the second half of 2014 on weak demand
and ample supply. Metal prices have also declined in recent period. According to the
IMF latest estimates, metal prices are projected to decline by 7.5 percent in 2014 and
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22
by 1.8 percent in 2015, before rising 0.6 percent in 2016. Food prices have also been
low during 2014 on improved supply prospects. The IMF projections indicate that
food prices will decline by 4.1 percent in 2014 and by 7.9 percent in 2015 and to
remain broadly unchanged in 2016. The larger weight of food items in the consumer
price index of the Sultanate is expected to keep inflation lower in 2015.
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IV.
Fiscal Position
The Sultanates fiscal trend in recent years has been characterized by rising public
expenditure and more so in the areas of current expenditure and expenditure on
participation and other expenses, a significant share of which consists of subsidies to
electricity and petroleum products. The rising public expenditure reflects higher oil
revenues which has been accounting for around 70 percent of government revenues.
Favorable crude oil prices have allowed for fiscal surpluses in recent years.
The Sultanates fiscal position remained strong during January-September 2014
period with a fiscal surplus of RO 136.1 million as against a surplus of RO 339.9
million over the same period last year, albeit with some weakening signs on the
revenues side (Chart 4 and Appendix Table 3). The continued favorable fiscal
position prevailing during the period under review owed to a negligible increase in
overall government expenditure, but equally important is the fact that a share of
Omani crude oil is sold on forward contract price which has been more favorable
than the oil sold on spot price, resulting in higher government revenues than would
have been otherwise. In fact, average Omani crude oil price during JanuarySeptember 2014 stood at US $ 105.8 per barrel higher than US $ 104.9 per barrel
registered over the same period in 2013, while average daily oil production also
increased by about 0.9 percent to 947.9 barrels or a cumulative 258.8 million barrels
during the nine months of current year.
Chart 4: Government Expenditure and Overall Fiscal Balance
Overall Fiscal Balance
Components of Government Expenditure

12500
In Million RO
In Million R.O
15000
10000
7500
5000
2500
0
2010
2011
2012
2013
Sep.2014
Participation & Other Expenses

Investment Expenditure
Current Expenditure
2010
2011
Total Revenue
Deficit/Surplus
Source: Ministry of Finance.
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15000
13000
11000
9000
7000
5000
3000
1000
-1000
24
2012
2013
Sep.2014
Total Expenditure
Table 5 : Fiscal Balance in Oman
2009
2010
2011
2012
(Rial Omani Million)

Jan-Sep
2013*
2013
2014
I. REVENUES
6748.4 7916.5 10624.7 13474.5 13907.6 10480.1 10463.4
(i) Oil and Gas Revenues
5221.8 6400.0
8971.3 11415.0 11924.8
8995.3
8854.1
(ii) Other Revenues
1526.6 1516.5
1653.4
1484.8
1609.3
II. TOTAL EXPENDITURE
7428.7 7965.3 10737.9 13555.1 13990.2 10140.2 10327.3
1. Current Expenditure
4218.5 4791.3
6103.8
8772.7
8822.0
4817.7
5935.8
(i) Defence & Nat. Security
1726.4 1888.2
2563.7
4742.5
4494.2
2213.9
2591.8
(ii) Civil Ministries
2216.7 2613.5
3186.9
3503.3
3848.5
2264.4
2969.4
289.6
353.2
526.9
479.3
339.4
374.6
2. Investment Expenditure
2690.9 2596.8
2959.5
2886.5
3120.0
2034.5
2213.2
(i) Civil Ministries
1633.9 1696.0
1925.8
1708.5
1805.0
1128.8
1297.4
(iii) Other Expenditure
275.4
2059.5
1982.8
(ii) Oil Production
696.1
613.5
624.3
659.9
752.7
556.8
550.5
(iii) Gas Production
360.9
287.3
409.4
518.1
562.3
348.9
365.3
3. Participation & Other

Expenses
519.3
577.2
1674.6
1895.9
2048.2
1259.5
1178.3
-680.3
-48.8
-113.2
-80.6
-82.6
339.9
136.1
III. SURPLUS/DEFICIT(I-II)
Note: Total expenditure for January-September 2013 includes RO 2,028.5 million as actual
expenditure under settlement. For 2014 R.O. 1000 million was included as expenditure under
settlement.
* Provisional.
Despite the margin realized through forward contract prices, net oil revenues (gross
oil revenue minus transfers to reserve funds) declined by 1.2 percent to RO 7,808.3
million while revenues from natural gas declined even further by 4.1 percent to RO
1,045.8 million with similar downward trend witnessed in other current revenues
declining by 3.9 percent to RO 1,387.5 million. What is of note is that all three
major sources of government revenues pointed to downward trends during JanuarySeptember 2014 when compared to similar period in 2013 (Table 5).
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25
The aggregate government expenditure during January-September 2014 increased

by 1.8 percent to RO 10,327.3 million, reflecting primarily a significant decrease in
actual expenditure under settlement which amounted to RO 1,000 million or over
half of what it had amounted to a year earlier. Another contributing expenditure item
in lowering total government expenditure during the period under review related to
expenditures on participation and other expenses which declined by 6.4 percent to
RO 1,178.3 million. However, current expenditure surged by 23.2 percent to RO
5,935.8 million, driven mainly by notable increases in key items such as defense and
national security which increased by 17.1 percent, while expenditure on civil
ministries witnessed an even larger increase of 31.1 percent. Capital expenditure
also increased by 8.8 percent to RO 2,213.2 million with expenditure on civil
ministries rising by almost 15 percent, gas production by 4.7 percent, while
expenditure on oil production decreased by about 1 percent (Chart 5 and Table 6).
Chart 5: Pattern of Government Expenditure
Breakdown of Investment
Expenditure for Jan-Sep. 2014
Breakdown of Current Expenditure for

Jan-Sep 2014
58%
50%
44%
41%
1%
6%
Defence & Nat. Security
Civil Ministries
Other Expenditure
Civil Development Expenditure

Oil and Gas Production Expenditure
Civil Capital Expenditure
The Sultanates aggregate government debt stood at RO 1,433.7 million as of the

end of September 2014, corresponding to a decrease of 3.6 percent from the
aggregate debt at the end of December 2013. The decline in aggregate government
debt between the two periods under review reflected the drop in total external debt
which stood at RO 603.7 million or a decrease of about 8.0 percent. As regards,
government development bonds issued to residents, the outstanding amount
remained at RO 830 million as of the end of September 2014. The total debt to GDP
ratio at 4.9 percent in 2013 (4.6 percent in 2012) continued to remain low, which
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26
augurs well for the economy of the Sultanate. Debt services ratio stood at 0.5
percent in 2013 as against 0.4 percent in 2012, which reflected sustained higher
exports together with small amounts on principal and interest payments in both
years.
Table 6 : Growth in Revenue and Expenditure
(Percent)
Jan-Sep
2014/2013
2009
2010
2011
2012
2013*
-11.7
17.3
34.2
26.8
3.2
-0.2
-13.0
22.6
40.2
27.2
4.5
-1.6
-6.7
-0.7
9.0
24.6
-3.7
8.4
II. TOTAL EXPENDITURE
-1.7
7.2
34.8
26.2
3.2
1.8
-4.6
13.6
27.4
43.7
0.6
23.2
(i) Defence & Nat. Security
-2.7
9.4
35.8
85.0
-5.2
17.1
-5.6
17.9
21.9
9.9
9.9
31.1
(iii) Other Expenditure
-7.2
5.2
22.0
49.2
-9.0
10.4
18.0
-3.5
14.0
-2.5
8.1
8.8
32.3
3.8
13.5
11.3
5.6
14.9
(ii) Oil Production
7.2
-11.9
1.8
5.7
14.1
-1.1
-9.0
-20.4
42.5
26.6
8.5
4.7

Expenses
-39.5
11.1
190.1
13.2
8.0
-6.4
I. REVENUES
(ii) Other Revenues
Memo Item
Crude Oil Prices
56.7 76.64 103.0 109.6
105.5
105.8
(US$ per barrel)
Note: Total expenditure for January-September 2013 includes RO 2,028.5 million as actual
expenditure under settlement. For 2014 R.O. 1000 million was included as expenditure under
settlement.
* Provisional
.Source: Ministry of Finance.
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27
State General Budget 2015

The State General Budget 2015 endeavors to continue the investment spending
required for maintaining real economic growth at 5 percent supported by non-oil
sector, which is expected to grow by 5.5 percent in real terms. The Government will
continue to implement the development and infrastructure projects as per their set
schedule in sectors like hospitals, schools, airports, roads, ports, electricity and
water. New priority projects approved under the current Five Year Development
Plan will also be implemented. The Government will also continue to raise the
efficiency and productivity of oil and gas sector. Given the actual trend in revenue
and expenditure during 2014, the projected increase in total revenue and total
expenditure during 2015 are lower as compared to projected increase in 2014
Budget (Table 7).
Table 7: Budget Estimates
ITEMS
2013
Budget
2014
Budget
2015
Budget
% change
Budget 2014/
Budget 2013
% change
Budget 2015/
Budget 2014
TOTAL REVENUES
11155.0
11700.0
11600.0
4.9
-0.9
9355.0
9650.0
9160.0
3.2
-5.1
(ii) Other Revenues
1800.0
2050.0
2440.0
13.9
19.0
TOTAL EXPENDITURE
(1+2+3)
12855.0
13500.0
14100.0
5.0
4.4
8125.0
8664.0
9576.0
6.6
10.5
(i) Defence & National Security
3555.0
3700.0
3800.0
4.1
2.7
4070.0
4487.0
5166.0
10.2
15.1
500.0
477.0
610.0
-4.6
27.9
3145.0
3228.0
3214.0
2.6
-0.4
1830.0
1838.0
1694.0
0.4
-7.8
(ii) Oil Production
660.0
690.0
780.0
4.5
13.0
655.0
700.0
740.0
6.9
5.7

Expenses
1585.0
1608.0
1310.0
1.5
-18.5
SURPLUS/DEFICIT
Source: Ministry of Finance
-1700.0
-1800.0
-2500.0
5.9
38.9
(iii) Other Expenditures
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28
The State General Budget for 2015 projects the total revenue of the State for the
year at RO 11.6 billion, a marginal decline of 0.9 percent over the total revenue of
RO 11.7 billion estimated for 2014 Budget. According to the State General Budget
2015, the actual public revenue for the fiscal year 2014 is estimated at RO 13.9
billion compared with budgeted amount of RO 11.7 billion, which reflects an
increase of around 19 percent. The projected oil revenue for 2015 is RO 7.7 billion,
which constitutes around 66 percent of total revenue. The projected gas revenue at
around RO 1.5 billion for 2015 represents 12.6 percent of total revenue. The non-oil
revenue is projected at around RO 2.4 billion, an increase of around 19 percent over
the budgeted amount for 2014.
Total Government expenditure has been projected at RO 14.1 billion during 2015,
an increase of 4.4 percent over budgeted expenditure of RO 13.5 billion during
2014. According to the State General Budget, the actual expenditure during 2014
was around RO 14.5 billion, an increase of around 7.0 percent over the budgeted
amount for 2014 as additional allocations were approved during the year to cover
emerging needs. Current expenditure at RO 9.6 billion represents around 68 percent
of total expenditure. The projected increase in current expenditure is 10.5 percent
during 2015 as compared to 6.6 percent projected in the 2014 Budget...
Investment expenditure at RO 3.2 billion comprises 22.8 percent of total
expenditure. Investment expenditure mainly covers spending on development
projects and capital expenses for the production of oil and gas. The investment
expenditure is projected to decline marginally by 0.4 percent during 2015. The
expenditure category participation and other expenses includes all Government
subsidies to housing loans, public sector companies and subsidies relating to food ,
electricity and petroleum products. The expenditure on participation and other
expenses at RO 1.3 billion is projected to decline by 18.5 percent. The major decline
at 32.6 percent from RO 860 million in Budget 2014 to RO 580 million in Budget
2015 is projected in subsidies relating to the petroleum products, while other
subsidies are expected to be almost at the same level as previous year.
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In the State Budget for 2015, the projected allocations for social sectors will
continue. The allocations include RO 3.0 billion for education, RO 1.6 billion for
health, RO 2.3 billion for housing and RO 1.8 billion for subsidies. The State
General Budget 2015 will also continue to implement the ongoing and new
infrastructural projects. There is a plan to privatize a number of state-owned
companies during 2015 to 2017.
The budget includes a net borrowing of RO 600 million, out of which RO 400
million will be from domestic market and RO 200 million from abroad. Based on
total revenue and expenditure, the projected budget deficit for the year 2015 is RO
2.5 billion as compared to RO 1.8 billion projected in the 2014 Budget for the
financial year 2014.
The Government endeavors to improve the quality of public services and support
social welfare schemes relating to health, education and housing. The Government
will continue to support small and medium enterprises and improve quality of public
and university education. The Government proposes to finance the budget deficit by
issuing long-term Islamic bonds and instruments so as to activate the domestic
capital market. Public debt as percent to GDP, however, will be maintained at safe
level so as to support stable prices and reduce burden on future generations.
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V.
Monetary and Banking Conditions
The primary objective of the Central Bank of Oman (CBO) is to ensure monetary
and financial stability and constantly strive to promote a sound macroeconomic
environment for enhancing investment and growth of the Omani economy within the
framework of a fixed exchange rate with the US dollar and open capital account.
The fixed exchange rateregime limits CBOs independence in setting domestic
monetary policy rates. Although twin objectives of monetary and financial stability
are complementary to each other, monetary stability is achieved essentially through
fixed exchange rate and monetary policy while financial stability is ensured through
appropriate regulatory and supervisory policies.
The fixed exchange rate is the nominal anchor through which monetary stability is
achieved. The exchange rate of the Omani Rial has been pegged to the US dollar
since 1973 and the peg has remained unchanged at US $ 2.6008 per Rial Omani
since 1986. The credibility of the peg is critical which not only imparts monetary
discipline but also promotes investment and trade of the country. In view of the
fixed exchange rate regime, the primary focus of the operating procedure of the
monetary policy is to ensure appropriate level of liquidity so as to avoid internal and
external imbalances. Interest rates in Oman are expected to be closely aligned to the
corresponding rates prevailing in the US in view of the fixed exchange rate of Rial
Omani with the US dollar. In fact, the current policy rates i.e. repo rate and CBO CD
rates are aligned to the corresponding LIBOR rate.
The CBO uses both direct and indirect instruments for liquidity management and
thereby try to achieve monetary stability. As regards direct instruments, the CBO
uses the cash reserve requirement and the lending ratio from time to time depending
on the circumstances. Among the indirect instruments, CBO is currently using the
weekly issuance of 28-day CDs as its main instrument to absorb liquidity. The
issuance is based on a multi-price auction method. The target rate is linked to
LIBOR. The CBO CDs are only issued to banks. They can be used as collateral for
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31
vertical repos with the CBO, but they cannot be rediscounted before maturity. The
CBO uses repo operation to inject liquidity in domestic currency and reverse swap
operation for lending in foreign currency to the domestic commercial banks in case
of need. A Master Repurchase Agreement (MRA) between the CBO and the banks
has been signed to regulate repurchase (repo) transactions. The repo rate was
reduced from 2 to 1 per cent in May 2012. The absence of an active government
securities issuance program limits the amount of collateral available. Besides
operationally active CBO CDs and repos, the CBO also provides discounting facility
to the commercial banks against eligible securities. This facility is more regarded as
last-resort source of central bank funds in extraordinary liquidity situations and is
not considered a liquidity management tool.
The monetary aggregates in Oman during the first three quarters of 2014 remained
consistent with the accommodative monetary policy stance of CBO aimed at
ensuring adequate liquidity in the system, maintaining orderly conditions in the
markets and supporting economic growth with low inflation. As at the end of
September 2014, narrow money stock (M1) when measured on year-on-year basis,
grew by 18.1 percent driven mainly by the increase in currency with the public by
23.7 percent as well as increase in demand deposits by 16.0 percent. Quasi-money
witnessed a growth of 13.6 percent during the period with the share of quasi-money
to the total money stock at 65.9 percent in September 2014 compared to 66.7 percent
a year ago. Broad money supply M2 (i.e. M1 plus quasi-money) stood at RO
12,933.4 million, up from RO 11,241.1 million a year ago registering an increase of
15.1 percent during the period (Table 8 and Chart 6).
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Table 8: Select Monetary Indicators

Monetary Indicators
September
2013
2014
2011
2012
2013
1,827.0
-18.3
2,493.5
36.5
2,652.2
6.4
2,760.3
24.9
3,195.0
15.7
3,065.0
6.6
3,492.3
13.9
3,951.2
13.1
3,737.9
4.8
4,412.8
18.1
9,855.0
12.2
10,912.0
10.7
11,837.9
8.5
11,241.1
4.6
12,933.4
15.1
5,524.0
10.3
5,513.7
-0.2
6,133.3
11.2
6,222.0
10.2
6,471.6
4.0
1. Reserve Money
In RO million
Annual Growth Rate
2. Narrow Money M1
In RO million
Annual Growth Rate
3. Broad Money M2
In RO million
Annual Growth Rate
4. CBO's Foreign Assets
In RO million
Annual Growth Rate
Source: Central Bank of Oman
The key drivers of monetary expansion during the year and as at the end of
September 2014 was the increase in bank claims on the private sector by RO 1208.1
million (9.0 percent) followed by claims on public enterprises by RO 170.2 million
(9.7 percent). Net claims on the Government, however, declined by RO 133.7
million during the one year period ended September 2014, mainly due to the
increased level of Government deposits parked with commercial banks. Monetary
expansion was also driven by the increase in net foreign assets of the banking
system by RO 145.7 million (2.2 percent). While CBOs net foreign assets rose by
RO 218.4 million, those of commercial banks declined by RO 72.7 million during
the period under review (Appendix Table 5).
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Chart 6: Monetary Indicators (Y-o-Y Growth in percent)

b) Broad Money Supply (M2)
40
20
30
15
Percent
Percent
a) Narrow Money Supply (M1)
20
10
10
5
0
2013
2014
2013
2014
Source: Central Bank of Oman.
Commercial Banks Operations

During 2014, the continued GDP growth and supporting monetary and financial
policies had a favorable impact on business growth and performance of commercial
banks. The balance sheet of commercial banks further strengthened due to the
growth in both deposits and credit. Total assets of commercial banks increased by
9.5 percent to RO 24.6 billion in September 2014 compared to RO 22.5 billion a
year ago (Appendix Table 6). Of the total assets, credit disbursement accounted for
67 percent and increased by 8.8 percent over the year to reach RO 16.5 billion as at
the end of September 2014 (Chart 7). While credit to the Government declined by
1.1 percent, credit to the private sector and public enterprises increased by 8.9
percent and 8.4 percent, respectively. Credit to the private sector stood at RO 14.4
billion as at the end of September 2014. Of the total credit to the private sector, the
share of non-financial corporate sector stood at 47.9 percent, closely followed by the
household sector at 45.4 percent, financial corporations at 4.7 percent and other
sectors the remaining 2 percent.
Commercial banks overall investments in securities increased by 19.8 percent to
RO 3.0 billion at the end of September 2014. While investments in Government
Development Bonds increased by 9.8 percent to RO 566.7 million, investments in
CBO CDs increased by 22.1 percent to RO 1,427.1 million in September 2014,
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reflecting a balancing investment pattern between short term and longer term
maturity. Commercial banks investments in foreign securities also increased to RO
687.4 million in September 2014 from RO 602.4 million a year ago. The core capital
and reserves of commercial banks increased by 8.0 percent during the period to RO
2.9 billion, while supplementary capital elements stood augmented by 10.1 percent
to reach RO 694.7 million as at the end of September 2014.
Chart 7: Banking Indicators (Y-o-Y Growth in percent)
a) Deposits Growth
b) Credit Growth
15
Percent
Percent
20
10
5
0
Jan
Mar
May
Jul
2013
Sep
Nov
14
12
10
8
6
4
2
0
Jan
Mar
May
2013
2014
Jul
Sep
Nov
2014
Aggregate deposits held with commercial banks registered a significant increase of

13.5 percent to RO 17.1 billion in September 2014 from RO 15.1 billion a year ago.
Private sector deposits, which constituted 62.6 percent of total deposits, increased by
15.5 percent. The increase was more in saving deposits by 23.4 percent, while
demand and time deposits grew by 18.9 percent and 5.3 percent, respectively.
With regard to sector-wise deposits, bank deposits held by the household sector
increased to 49.3 percent of total private sector deposits at the end of September
2014 from 48.3 percent at the end of September 2013. In absolute terms, bank
deposits held with the household sector increased from RO 4.48 billion at the end of
September 2013 to RO 5.29 billion by the end of September 2014. There was a
decline in the share of bank deposits held with financial corporations from 23.7
percent at the end of September 2013 to 21.0 percent at the end of September 2014,
while the share of non-financial corporates increased from 26.3 percent to 28.1
percent during the same period. The Government deposits held with commercial
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banks increased from RO 4.5 billion at the end of September 2013 to RO 5.2 billion
at the end of September 2014.
The behavior of credit to private sector in terms of percentage share did not see
much change from September 2013 to September 2014. The share of credit to the
household sector, which comprises mainly personal loans including residential
housing, remained almost unchanged at around 46 percent during the two periods. In
absolute terms, however, credit to the household sector increased from RO 6.04
billion at the end of September 2013 to RO 6.55 billion at the end of September
2014. The share of credit to non-financial corporations increased to 47.9 percent at
end-September 2014 from 46.9 percent at the end of September 2013 (Chart 8).
Chart 8: Share of Private Sector Deposit & Credit (September 2014)
a) Share of Deposit
b) Share of Credit
1.5%
4.7%
21.0%
2.1%
45.4%
49.3%
47.9%
28.1%
Households
Non-Financial Corporations
Financial Corporatins
Others
Households
Non-Financial Corporations
Financial Corporatins
Others
Banking Sector Developments

In its capacity as the countrys monetary agency, as well as the regulator and
supervisor of its financial institutions, the Central Bank of Oman (CBO) has been in
the forefront in promoting the financial sector. The CBO has put in place appropriate
prudential and regulatory framework, instilling confidence in the banking sector and
promoting economic growth and development in the economy. As part of the
ongoing efforts to strengthen the banking system and bringing about greater
financial inclusion, CBO initiated various measures in the recent period in line with
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international norms and best practices. These measures have helped improve the
efficiency of the Sultanates financial system in general and the banking sector in
particular.
In order to provide thrust and rigor to the supervision process of the banks, all onsite bank examinations done by CBO are now undertaken using the more risk
sensitive risk-based supervision methodology. Again, in order to strengthen the
risk assessment procedures, the CBO had issued guidelines to banks for the
implementation of the Internal Capital Adequacy Process (ICAAP), which has been
operationalized by all banks in Oman from December 31, 2012. Moreover, as
financial stability has emerged as a global issue, a financial stability department has
been set up within the CBO for macro-prudential supervision of the financial
system, which is now producing stress testing and financial stability reports. It is
comforting to note that the latest Stress Testing Report suggest that the overall
banking system appears to be quite resilient to withstand various shocks.
As regards regulation of banks, the Central Bank of Oman is well ahead in the
implementation of Basel III framework. As in other cases, the CBO has followed a
consultative approach in the implementation of this framework. The CBO had issued
the roadmap for implementation of Basel III framework in August 2012. The final
guidelines for implementation of Basel III framework were issued in November
2013. Some of the main features of these final guidelines prescribed by CBO
include: minimum common equity Tier 1 ratio has been prescribed at 7 percent of
risk weighted assets, while minimum Tier 1 capital ratio has been prescribed at 9
percent of risk weighted assets and the minimum total capital adequacy ratio has
been prescribed at 12 percent of risk weighted assets. The norms outlined for the
banks through this framework are in line with international best practices prescribed
by Basel III.
The CBO is also making efforts, in coordination with the Government, to promote
small and medium enterprises (SMEs), as they play a major role in promoting
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employment and creating a supply chain for the industrial sector. CBO advised
banks to formulate a liberal lending policy for the SME segment and mandated that
they should allocate at least 5 percent of their total credit to SMEs and this target is
to be achieved latest by December 2015. The prudential requirements for banks to
lend to SMEs have also been relaxed in terms of general provisioning requirements
and risk weightage. There are also efforts in terms of capacity building of
prospective entrepreneurs, identifying key areas for SME finance and facilitating
public-private cooperation. Given the concerted efforts of the Government and
CBO, it is expected that banks will be able to turn the lending option to SMEs
commercially attractive so that there is an added incentive on the part of the banks to
lend to this sector.
Banks are also efficiently and effectively building up their capacity in terms of
higher capital, exposure and leveraging abilities, technological capabilities and
foreign currency funding sources all of which play an important catalytic role in
promoting sustainable growth.
The Central Bank of Oman, too, has defined
exposures of banks to joint ventures of national importance in a liberal way. Thus,

banks are playing a very active role in promoting Government investment programs
and financing infrastructure projects. The Central Bank of Oman also provides an
efficient and reliable payment and settlement system by relying on the latest
technology, which supports business activities in Oman.
Islamic Banking
A notable development and an important milestone in the banking sector in the
recent period was the introduction of Islamic Banking in Oman since December
2012. The Government and the CBO have since then vigorously pursued to promote
Islamic banking in the Sultanate. Within the short span of issuing enabling legal and
regulatory requirements in December 2012, two full-fledged Islamic banks have
commenced operations in the Sultanate. Out of the seven local banks, six of them
have established Windows for practicing Islamic banking. All these institutions have
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established their own Sharia Supervisory Boards to guide them in sharia-related

matters. There has been considerable increase in the number of branches and assets
held by these banks. The Islamic banks and Windows operated with 29 branches as
at the end of December 2013.
With a relatively very short history of Islamic finance behind us, we are witnessing
that Islamic banks are opening up new segments and players and thus will add to the
competitive environment not only in terms of efficiency and innovation, but by also
providing the consumers the benefit of choosing between both conventional and
Islamic banking products. It is expected that healthy competition among
conventional and Islamic banks will benefit the population at large with larger reach
in terms of technology, products and services. Islamic banking Entities, by their
business philosophy itself, should find SME finance more attractive. Islamic
banking will also open up possibilities for investors from abroad and thus providing
opportunities for new foreign investments.
Performance of the Banking Sector

Omans banking sector comprises 7 Local Commercial banks, 9 foreign banks, 2
specialized banks and 2 full-fledged Islamic banks together with 6 local commercial
banks operating separate Islamic windows for banking operations. As at end 2013,
Commercial banks had 493 branches and 1100 ATMs. The financial health of banks
in terms of assets quality, provision coverage, capital adequacy and profitability
remained strong. During the year 2014, the balance sheet of commercial banks
strengthened further due to the robust growth in deposits and credit. As mentioned
earlier, the total assets of the commercial banks increased in September 2014
compared to a year ago. Total credit and total deposits expanded by 8.8 percent and
13.5 percent, respectively, in September 2014 as compared to September 2013. The
core capital and reserves of commercial banks increased by 8.0 percent during the
period to RO 2.9 billion, while supplementary capital elements was augmented by
10.1 percent to reach RO 0.7 billion as at the end of September 2014 (Table 9).
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Data available up to September 2014 indicates that provisional net profits continued
to remain high in 2014.
Table 9: Select Commercial Banking Indicators
Banking Indicators
2011
2012
2013
September
2013
2014
18,408.0
17.6
20,855.7
13.3
22,355.6
7.2
22,476.9 24,605.0
11.1
9.5
12,573.0
19.5
14,171.7
12.7
15,586.2
10.0
15,071.9 17,113.5
9.2
13.5
12,515.0
16.7
14,319.6
14.4
15,177.4
6.0
15,169.0 16,511.3
8.7
8.8
2.2
2.1
2.1
2.1
2.2
15.9
16.0
16.2
15.9
15.1
1. Assets
In RO million
Annual Growth Rate
2. Deposits
In RO million
Annual Growth Rate
3. Credit
In RO million
Annual Growth Rate
4. Gross NPLs (Percent)
5. Capital Adequacy Ratio (Percent)
The most significant achievement has been improvement in the financial health of
banks in terms of asset quality, provision coverage, capital adequacy, and
profitability. Despite increase in the size of the balance sheets, the gross nonperforming loans (NPLs) continued to remain low. The NPLs as percentage of total
credit at the end of 2013 stood at 2.1 percent same as in the year 2012. The ratio of
NPLs to total loans stood at 2.2 percent in September 2014. The capital adequacy
ratio stood at 15.1 percent of risk-weighted assets in September 2014, which was
higher than the minimum regulatory requirement of 12 percent prescribed by CBO.
The banking sectors outlook remains positive, supported by favorable oil prices and
large expenditures planned by the Government as part of the Eighth Five Year Plan.
With greater participation of commercial banks in the development process together
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with large investments by the Government, the balance sheets of commercial banks
are expected to remain healthy.
Interest Rate Developments
The CBOs liquidity injection policy rate i.e., repo rate remained unchanged at 1
percent since March 2012, consistent with LIBOR rate. The ceiling interest rate on
personal and housing loans was reduced by one percentage point to 6 percent with
effect from October 2, 2013. The CBOs policy interest rate for absorption of
liquidity in the form of CBO CDs of 28 days maturity marginally declined from
0.130 percent in September 2013 to 0.126 percent in September 2014. With respect
of domestic interest rate structure of commercial banks, the weighted average
interest rate on Rial Omani deposits declined from 1.236 percent in September 2013
to 1.030 percent in September 2014, while the weighted average Rial Omani lending
rate decreased from 5.463 percent to 5.163 percent during the same period (Chart 9
and Appendix Table 7).
Chart 9: Weighted Average Rial Omani Deposit and Lending Rates (%)
Percent
Percent
a) RO Deposit Rate
1.4
1.3
1.3
1.2
1.2
1.1
1.1
1.0
2013
2014
5.7
5.6
5.5
5.4
5.3
5.2
5.1
5.0
b) RO Lending Rate
2013
2014
Since December 2008, banks have been offering lower interest rate on foreign
currency deposits compared to Rial Omani deposits. Interest rate on foreign
currency deposits declined from 1.005 percent in September 2013 to 0.908 percent
in September 2014. The lending rate in foreign currency, which was 2.336 percent in
September 2013, rose modestly to 2.441 percent by September 2014. Commercial
banks spread in foreign currency lending over the foreign currency deposit rate rose
to 1.533 in September 2014 from 1.331 in September 2013. Interest rates on foreign
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currency deposit and lending were mostly governed by those prevailing in the
international markets, while domestic deposit and lending rates were influenced by
domestic demand nd supply conditions.
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VI.
Financial Markets
It is a well-known fact that the financial structure of any country is composed of a

variety of markets and financial products, and development encompasses not only
monetary aggregates and interest rates but also financial openness, regulation and
supervision, and institutional capacity. In recognition of the critical role played by
the financial sector, Oman has been focusing on developing deeper, liquid, vibrant
and integrated banking system and financial markets. It is now recognized that
domestic financial system is important to support the growth momentum and
diversification of the Omani economy. This also allows risks to be shared more
broadly and facilitates the flow of capital to the productive sectors.
Typically, for a small open economy like Oman, financial development is measured
by a small set of quantitative variables, such as the ratio of broad money to GDP and
the ratio of private sector credit to GDP. The ratio of broad money to GDP is
conventionally used as a measure of financial sector deepening, however, such
indicators may not be comprehensive enough. When we look at the level of financial
deepening based on the simple indicators like ratio of broad money to GDP and ratio
of credit to GDP, we find that these ratios have been increasing gradually in Oman.
The ratio of broad money to GDP stood at 38.7 percent during 2013. Similarly, the
ratio of bank credit to GDP was 49.6 percent during 2013, while the ratio of bank
deposits to GDP stood at 50.9 percent in 2013. Another indicator that is quite often
looked at is the ratio of market capitalization to GDP. With respect to the Omani
stock market, this ratio has come down in the last few years in line with other
markets of GCC countries and it stood at 46.2 percent in 2013. Looking at these
ratios indicate that there is a scope for further financial deepening in Oman.
In Oman, the money market, Government securities market and the foreign
exchange market fall within the jurisdiction of the CBO, while the capital market,
corporate debt market and the insurance market are regulated by Capital Market
Authority (CMA). It is recognized in Oman that the development of vibrant
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Government securities market and the corporate bond market are important to raise
resources from the market in a cost effective manner. The Government, the Central
Bank of Oman (CBO), the Capital Market Authority (CMA), and the market
participants have been laying emphasis to develop a deep and liquid domestic
Government securities and corporate debt markets. The existence of an efficient
government securities market is seen as an essential precursor, in particular, for
development of the corporate debt market. Reforms in these markets are focusing on
the development of appropriate market infrastructure, elongation of maturity profile,
increasing the width and depth of the market, improving risk management practices,
efficient payments and settlements mechanism and increasing transparency.
The primary aim of CBOs operations in the money market is to ensure that the
liquidity and short-term interest rates are maintained at levels consistent with its
monetary policy objectives. CBO influences liquidity and interest rates through the
cash reserve ratio for banks, operations in CBO CDs, repo transactions and at times
through foreign exchange swap operations. The CBO undertakes liquidity
management operations to smooth out short-term fluctuations in bank liquidity to
avoid excessive adjustment cost to the banking system. For absorption of liquidity
from the banking system, CBO issues on weekly basis its certificates of deposit
(CDs) while injection of liquidity is mainly done through repurchase agreements
(Repos) in government securities and CDs of the CBO. An intra-day liquidity
facility by way of Repos is also provided to banks.
The domestic inter-bank call money market continued to lack sufficient depth with
transactions mostly confined to overnight tenors. In the over-night call money
market in Oman, the average daily turnover during the first nine months of 2014 was
lower at RO 22.93 million compared to RO 29.79 million during the same period of
the previous year. In the background of excess liquidity, the overnight domestic
inter-bank call money rates softened to 0.131 percent per annum in September 2014
from 0.158 percent a year ago. They however remained higher than the CBO CD
rates ruling out any possibility of interest rate arbitrage (Chart 10). While structural
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excess liquidity has been mopped up by weekly auction of the CBO CDs, frictional
liquidity found its equilibrium among banks in the overnight call money market at a
modest premium over the CBO CD rate.
Chart 11: MSM Index and Market

Capitalization
Percent
0.80
0.60
0.40
Sep-14
Jul-14
Mar-14
May-14
Nov
Jan-14
Sep
Jul
May
Mar
0.00
Jan-13
0.20
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
10000
20000
8000
15000
6000
4000
2000
0
CBO CDs Rate (right scale)

Repo Rate (left scale)
Inter-bank Overnight Call Rate (right scale)
RO Million
1.00
Index
1.20
Percent
Chart 10: Policy Rate and Inter-Bank Call Rate
10000
5000
0
MSM 30 Share Price Index

Market capitalization (RO Million) (right
The activities of the Muscat Securities Market (MSM) reflected a positive trend in
general. The Muscat Securities Market Index, also known as MSM-30, as at the end
of September 2014, increased by 12.6 percent over the end-September 2013 level.
The market capitalization increased by around 16.0 percent to reach RO 15.6 billion
in the three quarters (January-September) of 2014 from RO 13.5 billion during the
same period of 2013. The turnover increased by 3.4 percent to reach RO 1.71 billion
during January-September, 2014 from RO 1.65 million during the same period of
the previous year. The total number of securities traded during January-September
2014 declined by 20.9 percent to 5086.1 million as compared to 6427.8 million
shares traded during the 9 months in 2013. The financial sector was the most active
sector with a share in total turnover at 54.1 percent during January-September 2014,
followed by services sector with a share in total turnover of around 33.3 percent and
industrial sector with a share in total turnover at 11.9 percent during the same period
(Chart 11).
The foreign exchange market is predominantly dollar based as it acts as the main
intervention currency for international trade and is the anchor currency under the
fixed exchange rate regime. Foreign exchange market by and large worked smoothly
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during the first three quarters of 2014 despite turbulence in the international
financial markets. Government continued to remain the main supplier of foreign
exchange due to its dollar denominated oil revenues which it sells to the CBO for its
local currency requirements. Commercial banks, on the other hand, purchased
foreign exchange from the CBO to meet the customers demand for foreign
exchange arising from transactions related to imports, workers remittances and
other capital account transactions. The foreign exchange market is predominantly
dollar based as it acts as the main intervention currency for international trade and is
the anchor currency under the fixed peg. Commercial banks also accept foreign
currency deposits, bulk of which is denominated in the US dollar. While foreign
currency deposits mostly finance foreign currency lending, commercial banks can
borrow from the overseas markets within the aggregate gap limit prescribed by the
CBO. The Government is the main supplier of foreign exchange due to its dollar
denominated oil revenues which it sells to the CBO in lieu of its local currency
requirements, while commercial banks are the main buyers of foreign exchange
from CBO to meet its customers import payments, remittances and other capital
account transactions. During January- September, 2014, CBO purchased US $ 21.4
billion from the Government while sale of US dollar to commercial banks amounted
to US $ 21.7 billion.
NOMINAL EFFECTIVE EXCHANGE RATE (NEER)
The Rial Omani NEER index decreased from 95.7 in March 2014 to 95.1 in June,
rising again to 98.4 in September 2014, indicating an appreciation of the Rial Omani
between June 2014 and September 2014 against a basket of currencies of the
Sultanates importing partners. The appreciation in Omani NEER index witnessed
between June and September 2014 mirrored the trend in US dollar as the US
economy rebounded in the second quarter and growing faster than expected in the
third quarter of 2014. Real GDP in the US grew by 4.6 per cent in the second quarter
and by 5.0 percent in the third quarter, which was higher than the expected. The
higher economic growth witnessed in the US in the third quarter of the current year
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contrasted with a timid growth in the Euro zone during the same quarter and two
successive quarters of contraction of the Japanese economy, prompting the US
dollar to gain strength against a number of major currencies (Table 10).
TABLE 10
EFFECTIVE EXCHANGE RATE INDEX OF RIAL OMANI
(1999 = 100)
End of Period
2012
2013
2014
Weighted Average
March
June
September
December
92.1
93.5
91.9
92.9
March
June
September
December
95.2
96.6
95.5
96.2
March
June
September
95.7
95.1
98.4
Note: It may be noted that when the index of Rial Omani NEER rises, it indicates an appreciation of NEER
and when the index falls, it indicates a depreciation of NEER. The index of Rial Omani NEER rises
when the US dollar appreciates against the major currencies. Similarly, the index of Rial Omani falls
when the US dollar depreciates against the major currencies.
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VII. Foreign Trade and Balance of Payments

The estimated balance of payments position of the Sultanate of Oman pointed to a
favorable condition during the first two quarters of 2014 (January-June) despite
marginally lower average Omani crude oil price and lower exports and imports.
Total merchandise exports during the first two quarters (January-June) of 2014 were
lower by 9.6 percent mainly due to lower oil exports and re-exports. Crude oil
exports declined by 9.2 percent, while natural gas exports declined by 14.2 percent
during January-June 2014. Oil and natural gas exports accounted for 66 percent of
total merchandise exports during the January-June 2014 (Table 11 and Appendix
Table 8).
Table 11: Omans Foreign Trade
January-June
2014
% Change
2012
2013
2013
Total Merchandise Exports
20,047
21,697
11,072
10,007
-9.6
Oil Exports
Natural Gas
Other Exports
Re-Exports
12,352
1,615
3,594
2,486
12,678
1,670
3,807
3,541
6,466
845
1,787
1,973
5,874
725
1,845
1,563
-9.2
-14.2
3.2
-20.8
Imports (c.i.f)
10,811
13,201
6,462
5,585
-13.6
Trade Balance
9,236
8,496
4,610
4,422
-4.1
Merchandise Trade
Note:Imports figure in this table are on c.i.f. basis. As a result, trade balance figure given in this
Table will not match with balance of payments Table given in the Annual Report.
Source: Directorate General of Customs; National Center for Statistics and Information; Ministry of
Oil and Gas.
Merchandise imports declined by 13.6 percent during January-June 2014 mainly due
to lower demand for re-export of mineral products. The bulk of imports included
mineral products, electrical machinery and mechanical equipment and transport
equipment. There was a trade surplus of RO 4.4 billion during the first two quarters
of 2014; lower by 4.1 percent over the first two quarters of 2013 (Chart 12).
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Chart 12: Omans Merchandise Trade and Trade Balance
Oman's Merchandise Trade
1000
1500
1000
500
0
800
700
600
500
400
300
Total Exports
Source:
Oman's Trade Balance
900
2000
Million Rial Omani
Million Rial Omani
2500
Trade Balance
Total Recorded Imports
Directorate General of Customs; National Center for Statistics and Information;

Ministry of Oil and Gas.
There was a marginal increase in non-oil exports by 3.2 percent led mainly by
mineral products and plastic and rubber products. Exports of plastic and rubber
products increased by 34.3 percent, while that of mineral products increased by 4.6
percent. There was sharp decline of 20.8 percent in re-exports during January-June,
2014.
Although quarterly balance of payments data are not available in the public domain,
the recent trend in merchandise trade indicates that current account surplus in the
first half of 2014 will be almost at the same level or marginally lower over the same
period last year. The services, income and current transfers will continue to be in a
deficit mode, given the nature of the Omani economy.
On the capital and financial account front, it is expected that there will be net inflow
mainly due to net inflows under other investment on account of draw down on
Governments bank balances abroad. Component-wise, although firm data are not
available on foreign investments, it is expected that there will be a very small
outflow under foreign direct investment, while net inflows under portfolio
investment will be higher.
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Even with deficits in services, income and transfers account and outflows under
capital and financial account, it is expected that the overall balance of payments will
register a surplus in the first half of 2014 mainly due to large surplus in merchandise
trade account. Reflecting the country's overall balance of payments position which
seems to have remained comfortable, the foreign assets of the CBO during the first
three quarters of 2014 increased by 5.5 percent to RO 6471.6 million compared to
RO 6133.3 million at the end of December 2013.
Foreign Investment in Oman

Oman is committed to a policy of open market economy based on free competition
in which the private sector is encouraged and facilitated to play a leading role. The
policy is to encourage foreign capital that will enhance the overall development of
the country. In recent years, with very favorable investment climate, the Sultanate
of Oman has emerged as an attractive destination for foreign direct investment due
to its free market system, stable macroeconomic environment and political stability.
The Sultanate offers an investor-friendly legislative environment, flexible tax system
and transparent corporate governance. Oman's Foreign Capital Investment Law has
been liberalized, permitting 70 percent foreign participation in companies
automatically in most of the sectors and even 100 percent foreign capital investment
is permitted for projects of national importance. There is low tax on profits and no
personal income tax. The flexible tax system allows exemption on tax on profits for
5 years, renewable for a further 5 years for certain sectors. There are no restrictions
on repatriation of capital and profits. An array of incentives in the form of plots of
land at nominal lease charges in specified areas, reduced utility charges and
exemption from taxes are offered to the foreign investors. The Ministry of
Commerce & Industry provides a "One-Stop-Shop" for assisting the domestic and
foreign investors in obtaining all required clearances quickly and from one window.
Foreign Investors are also allowed to own real estate in Oman within specified
integrated tourism complexes. Given the fact that Oman is a free economy, there is
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no restriction on remittances abroad of equity, debt, capital, interest, dividends,

profits and personal savings. Moreover, the fixed exchange rate of Omani Rial
provides certainty of returns to the foreign investors in the absence of exchange rate
risk.
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Appendix Tables
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52
Appendix Table 1
Gross Domestic Product at Current Market Prices

Activities
Jan - Sep
% change
(2014/13)
2011
2012
2013*
18716.2
13888.8
12875.2
1013.6
20660.5
15350.2
14239.1
1111.1
20702.5
15205.8
14047.0
1158.8
2013*
14586.5
11258.7
10458.0
800.7
2014**
14624.4
11414.5
10668.5
746.0
1.2 Non-Petroleum Industrial

Activities
- Mining and Quarrying
- Manufacturing
- Electricity & Water Supply
- Construction
2. Agriculture & Fishing
3. Services
- Wholesale & Retail Trade
- Hotels & Restaurants
4827.4
98.8
2979.9
301.9
1446.7
327.9
8956.0
1776.6
170.3
5310.3
100.9
3143.5
318.9
1747.0
341.3
10378.0
1963.0
218.8
5496.7
114.7
3138.8
346.2
1987.0
371.2
11330.4
2042.3
238.2
3327.8
69.7
1980.7
246.9
1030.6
285.5
8907.5
1867.1
164.7
3209.9
75.6
1810.6
267.7
1056.0
311.6
10032.2
1907.4
178.8
-3.5
8.4
-8.6
8.4
2.5
9.2
12.6
2.2
8.5
- Transport, Storage &

Communication
- Financial Intermediation
1226.2
1091.5
1378.9
1273.5
1469.2
1383.4
1560.5
944.6
1670.5
1047.6
7.0
10.9
- Real Estate & Business

Activities
1030.5
1090.8
1155.1
957.7
1018.3
6.3
1933.7
2472.2
2764.6
1823.1
2082.9
14.2
1727.1
1980.8
2277.6
1589.9
2126.8
33.8
14111.3
16029.6
17198.3
12520.8
13553.7
8.2
533.6
589.0
612.6
446.2
473.1
6.0
6. Gross Domestic Product at

Producers Prices (1.1+4-5)
27466.4
30790.7
31791.5
23333.3
24495.1
5.0
7. Plus :Taxes Less Subsidies on

Products
-1344.4
-1437.5
-1730.2
-882.2
-875.7
-0.7
30061.3
22451.1
23619.4
5.2
1. Industry (1.1 + 1.2)

1.1 Petroleum Activities
- Crude Petroleum
- Natural Gas
- Public Administration &

Defence
- Other Services (Education,
Health, Community/Personal
Services, and Private
Household)
4. Total Non-Petroleum
Activities (1.2 + 2 +3)
5. Less Financial Intermediation
Services Indirectly Measured
8. Gross Domestic Product at

Market Prices (6+7)
26122.0
29353.3
* Provisional.
** Preliminary.
Source: National Center for Statistics & Information.
INTERNAL
53
0.3
104
2.0
-6.8
Appendix Table 2
Sultanate Consumer Price Index (2012 = 100)

1 Food & non-alcoholic Beverages
Weights
2012
2013
Jan - Sep
2013
2014
23.903
100.0
100.0
100.0
100.0
100.0
102.8
100.9
101.2
107.3
100.9
102.3
100.2
101.1
107.8
100.8
104.4
102.4
103.0
117.1
101.6
2.0
2.1
1.9
8.7
0.8
100.0
104.4
108.4
99.8
100.3
100.0
103.9
104.9
99.8
100.2
100.1
106.7
104.5
99.6
100.7
0.1
2.7
-0.4
-0.2
0.5
% change
(2014/13)
Bread & Cereals
3.020
Meat
6.103
Fish & Seafood
2.208
Milk , Cheese & Eggs
2.865
Oil & Fats
0.715
Fruits
2.815
Vegetables
2.493
Sugar,Jam,Honey & Confectionary
1.135
Food Products n.e.c.
0.521
100.0
100.0
100.0
100.0
100.0
Non Alchoholic Beverages
2.028
100.0
102.1
102.0
103.3
1.2
2 Tobacco
0.125

4 Housing , Water, electricity, gas and
other fuels
5 Furnishings, household equipment &
routing household maintenance
5.961
100.0
100.0
101.5
101.8
101.5
101.8
101.9
101.8
0.5
0.0
26.477
100.0
100.5
100.2
101.5
1.2
3.787
6 Health
1.161
7 Transport
19.167
8 Communication
5.633
9 Recreation & Entertainment
1.135
10 Education
1.368
11 Restaurant and Hotels
6.098
12 Miscellaneous goods and Services
5.185
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
102.2
101.5
100.4
97.7
98.9
104.2
101.1
100.3
101.8
101.1
100.5
98.8
99.0
102.6
100.9
100.3
107.3
106.3
99.8
97.4
98.8
109.1
102.1
100.4
5.4
5.1
-0.7
-1.4
-0.1
6.3
1.2
0.1
General Price Index
100.0
100.0
101.1
100.9
102.0
1.0
Note:1. The weights produced from the Household Expenditure and Income Survey, 2008-2010.
2. Data collected from all regions of the Sultanate excluding (Musandam Governorate and AL Wustta Region).
3. The collection is based on 28168 items of goods and services from 1721 selected sources, while rent is collected from
a sample of 1150 rented units.
Source: National Center For Statistics & Information-Directorate General of Economic Statistic
Monthly Surveys of Consumption Goods.
INTERNAL
54
Appendix Table 3
Public Finance
Items
REVENUES
2011
2012
2013
Estimated
Budget
2014
Jan - Sep
2013
2014
% change
(2014/13)
10624.7
13474.5
13907.6
11700.0
10480.1
10463.4
-0.2
Net Oil Revenues
7798.4
9831.3
10429.5
8150.0
7904.4
7808.3
1.2
Gas Revenues
1172.9
1583.7
1495.3
1500.0
1090.9
1045.8
-4.1
Other Current Revenues
1596.5
2033.7
1931.0
2000.0
1444.5
1387.5
-3.9
Capital Revenues
17.6
13.0
30.2
20.0
21.2
10.2
-51.9
Capital Repayments
39.3
12.8
21.6
30.0
19.1
211.6
10737.9
13555.1
13990.2
13500.0
10140.2
10327.3
1.8
Current Expenditure
6103.8
8772.7
8822.0
8664.0
4817.7
5935.8
23.2
Defence & National Security
2563.7
4742.5
4494.2
3700.0
2213.9
2591.8
17.1
Civil Ministries
3186.9
3503.3
3848.5
4487.0
2264.4
2969.4
31.1
Interest Paid on Loans
38.1
45.3
53.6
45.0
34.2
33.2
13.6
Gas Production Expenditures
80.1
88.9
81.8
92.0
57.6
60.2
4.5
Oil Production Expenditures
235.0
392.7
343.9
340.0
247.6
281.2
-2.9
Investment Expenditure
Development Expenditure for
Civil Ministries
Capital Expenditure for Civil
Ministries
Oil Production Expenditures
Gas Production Expenditures
Participation & Other
Expenses
Actual Expenses under
Settlement**
2959.5
2886.5
3120.0
3228.0
2034.5
2213.2
8.8
1871.9
1650.3
1744.3
1800.0
1110.8
1272.8
14.6
53.9
624.3
409.4
58.2
659.9
518.1
60.7
752.7
562.3
38.0
690.0
700.0
18.0
556.8
348.9
24.6
550.5
365.3
36.7
-1.1
4.7
1674.6
1895.9
2048.2
1608.0
1259.5
1178.3
-6.4
0.0
0.0
0.0
0.0
2028.5
1000.0
-50.7
-113.2
-80.6
-82.6
-1800.0
339.9
136.1
FINANCING
113.2
80.6
Net Grants Received
-55.7
-32.7
Drawing from Reserves
0.0
0.0
Net loans Received
-38.9
-36.7
Development Bonds(Net)
150.0
150.0
Remaining Surplus
57.8
0.0
Change in Government
Accounts
0.0
0.0
* Provisional.
** Amount already allocated but not yet disbursed.
82.6
-43.4
0.0
-74.0
200.0
0.0
1800.0
0.0
400.0
200.0
200.0
1000.0
-339.9
-24.5
0.0
-64.1
100.0
0.0
-136.1
-27.8
0.0
-52.8
0.0
0.0
0.0
0.0
-351.3
-55.5
TOTAL EXPENDITURE
SURPLUS/DEFICIT
INTERNAL
55
Appendix Table 4
Money Supply
End of
Period
2009
Mar.
Currency
with
Demand
Public
Deposits
(1)
(2)
Money
Supply (M1)
(3) =(1+2)
% Change in
M1Over
Previous Year
(4)
QuasiMoney*
(5)
Money
Supply
(M2)
(6)=(3+5)
% Change in
M2 Over
Previous
Year
(7)
608.4
1573.9
2182.3
-6.0
5404.9
7587.2
13.0
June
615.7
1660.8
2276.5
1.6
5324.8
7601.3
8.2
Sept.
Dec.
619.7
624.2
1619.3
1740.6
2239.0
2364.8
3.2
18.5
5426.8
5525.1
7665.8
7889.9
7.7
4.7
2010
Mar.
634.0
1969.1
2603.1
19.3
5672.3
8275.4
9.1
June
632.8
1958.9
2591.7
13.8
5616.6
8208.3
8.0
Sept.
648.9
2017.8
2666.7
19.1
5667.9
8334.6
8.7
Dec.
702.0
2173.9
2875.9
21.6
5908.9
8784.8
11.3
2011
Mar.
759.4
2344.4
3103.8
19.2
5616.4
8720.2
5.4
June
795.8
2269.2
3065.0
18.3
5943.5
9008.5
9.7
Sept.
807.1
2457.5
3264.6
22.4
6228.4
9493.0
13.9
Dec.
843.1
2221.8
3064.9
6.6
6790.0
9854.9
12.2
2012
March
912.0
2557.9
3469.9
11.8
6745.0
10214.9
17.1
June
914.7
2490.9
3405.6
11.1
7110.8
10516.4
16.7
Sept.
910.6
2656.5
3567.1
9.3
7175.0
10742.1
13.2
Dec.
925.9
2566.4
3492.3
13.9
7419.7
10912.0
10.7
2013
March
981.0
2702.9
3683.9
6.2
7514.3
11198.2
9.6
June
978.1
2621.1
3599.2
5.7
7681.8
11281.0
7.3
Sept.
1001.4
2736.5
3737.9
4.8
7503.2
11241.1
4.6
Dec.
1045.0
2906.2
3951.2
13.1
7886.7
11837.9
8.5
2014
March
1116.9
3504.2
4621.1
25.4
8110.2
12731.3
13.7
June
1142.6
3569.1
4711.7
30.9
8334.9
13046.6
15.7
Sept.
1239.2
3173.6
4412.8
18.1
8520.6
12933.4
15.1
*Quasi Money = Resident Time and Savings Deposits, Margins & Foreign Currency Deposits.
INTERNAL
56
Appendix Table 5
Factors Affecting Broad Money (M2)

Sep. 2013
1. Broad Money (A+B)
Sep. 2014
Absolute
Change in RO
Million
Sep.2014/2013
% Change
Sep.
2014/2013
11241.1
12933.4
1692.3
15.1
3737.9
4412.8
674.9
18.1
a) Currency with public
1001.4
1239.2
237.8
23.7
b) Demand Deposits
2736.5
3173.6
437.1
16.0
7503.2
8520.6
1017.4
13.6
942.5
1046.2
103.7
11.0
6590.3
6736.0
145.7
2.2
6116.1
6334.5
218.4
3.6
474.2
401.5
-72.7
-15.3
4650.8
6197.4
1546.6
33.3
-4848.3
-4982.0
-133.7
2.8
A. Money (M1)
B. Quasi Money
(Of which foreign cy. deposits)
2. Foreign Assets (Net)
Central Bank
Commercial Banks
3. Domestic Assets
A) Claims on Government (net) (i-ii)
i) Government borrowings
563.1
661.4
98.3
17.5
ii) Government Deposits (-)
5411.4
5643.4
232.0
4.3
13437.3
14645.4
1208.1
9.0
c) Claims on Public Enterprises
1751.4
1921.6
170.2
9.7
d) Other items (net) (-)
5689.6
5387.6
-302.0
-5.3
b) Claims on Pvt. Sector
INTERNAL
57
Appendix Table 6
Combined Balance Sheet of Commercial Banks
Cash and deposits with CBO

Due from H/O, branches and affiliates
abroad
Due from other banks abroad
Total Credit
a) Credit to Government
b) Credit to public enterprises
c) Credit to private sector
(Of which in foreign currency)
d) Credit to non-residents
Securities
a) Treasury Bills
b) Government Development Bonds
c) CBO CDs
d) Domestic Shares
e) Other domestic securities
f) Foreign securities
Net fixed assets
Other assets
TOTAL ASSETS / LIABILITIES
Total Deposits
a) Government deposits
b) Deposits of public enterprises
c) Deposits of Private Sector
i) Demand
ii) Savings
iii) Time
iv) Commercial prepayments
(Of which in foreign currency)
d) Deposits of non-residents
Due to H/O, branches and affiliates abroad
Due to other banks abroad
Core capital and reserves
Supplementary capital elements
Specific provisions and reserved interest
(Of which general provisions)
Other Liabilities
2012
2013
Sep.
2013
1,568.0
1,537.7
1,669.7
401.2
1,488.4
14,319.6
31.3
1,699.8
12,414.2
(1,206.5)
174.3
2,133.5
0.0
470.3
909.5
122.3
84.5
547.0
176.5
768.6
20,855.8
14,171.7
3,955.1
969.2
9,016.8
2,575.6
2,949.7
3,392.1
99.4
(629.6)
230.6
464.4
1,223.0
2,712.8
572.5
532.2
(189.8)
1,179.1
452.3
1,424.4
15,177.4
18.4
1,731.1
13,262.2
(1,341.1)
165.8
2,550.3
0.0
567.5
1,247.0
149.1
84.5
502.2
189.0
1,024.6
22,355.6
15,586.2
4,504.3
935.4
9,857.6
2,985.9
3,384.2
3,371.6
116.0
(681.6)
288.9
363.5
988.5
3,009.0
633.1
560.8
(197.2)
1,214.6
354.3
1,572.4
15,169.0
18.9
1,732.7
13,259.9
(1,305.6)
157.5
2,511.9
0.0
516.3
1,169.1
139.6
84.6
602.4
177.2
1,022.3
22,476.9
15,071.9
4,478.6
961.6
9,278.2
2,823.6
3,122.4
3,219.0
113.1
(654.7)
353.6
515.2
1,056.0
2,672.7
631.2
556.2
(197.9)
1,973.6
INTERNAL
58
% Change
Sep.2014/13
1,865.8
11.7
Sep.
2014
407.1
1,394.1
16,511.3
18.7
1,878.3
14,437.2
(1,589.1)
177.2
3,008.7
0.0
566.7
1,427.1
190.0
137.6
687.4
191.6
1,226.4
24,605.0
17,113.5
5,163.2
974.7
10,719.4
3,357.6
3,852.3
3,388.1
121.4
(736.3)
256.2
322.7
1,385.1
2,886.8
694.7
596.6
(211.5)
1,605.6
14.9
-11.3
8.8
-1.1
8.4
8.9
21.7
12.5
19.8
9.8
22.1
36.1
62.5
14.1
8.1
20.0
9.5
13.5
15.3
1.4
15.5
18.9
23.4
5.3
7.3
12.5
-27.5
-37.4
31.2
8.0
10.1
7.3
6.9
-18.6
Appendix Table 7
Weighted Average Interest Rates
Deposits
(Percent per annum)
Lending
Total RO
Deposits
Total FCY
Deposits
Total
Deposits
(RO+Fcy)
Jan-12
1.394
0.921
1.319
6.167
2.325
5.485
Feb-12
Mar-12
1.367
1.318
0.95
0.962
1.302
1.266
6.153
6.085
2.349
2.509
5.485
5.458
Apr-12
May-12
1.296
1.310
0.927
0.931
1.242
1.252
6.011
5.895
2.564
2.316
5.420
5.325
Jun-12
Jul-12
1.301
1.320
0.91
0.892
1.242
1.256
5.896
5.885
2.429
2.401
5.350
5.349
Aug-12
Sep-12
1.326
1.299
0.901
0.8997
1.263
1.242
5.842
5.774
2.399
2.384
5.324
5.268
Oct-12
Nov-12
1.301
1.284
0.877
1.016
1.241
1.247
5.741
5.712
2.317
2.439
5.231
5.249
Dec-12
Jan-13
1.316
1.313
1.011
0.974
1.274
1.266
5.649
5.664
2.385
2.343
5.201
5.202
Feb-13
Mar-13
1.32
1.278
1.008
0.998
1.278
1.241
5.627
5.584
2.418
2.366
5.173
5.134
Apr-13
May-13
1.269
1.247
0.985
0.966
1.232
1.21
5.559
5.535
2.383
2.462
5.127
5.11
Jun-13
Jul-13
1.247
1.248
0.928
0.924
1.205
1.207
5.514
5.464
2.294
2.362
5.06
5.024
Aug-13
Sep-13
1.235
1.236
0.904
1.005
1.193
1.206
5.481
5.463
2.283
2.336
5.017
5.023
Oct-13
Nov-13
1.192
1.177
0.949
0.883
1.162
1.141
5.456
5.430
2.263
2.262
5.002
4.980
Dec-13
Jan-14
1.171
1.141
0.908
0.836
1.138
1.106
5.409
5.397
2.303
2.259
4.963
4.935
Feb-14
Mar-14
1.116
1.100
0.906
0.951
1.091
1.084
5.353
5.326
2.290
2.305
4.900
4.874
Apr-14
May-14
1.081
1.049
0.953
0.911
1.068
1.035
5.281
5.250
2.351
2.366
4.852
4.827
Jun-14
Jul-14
1.041
1.046
0.933
0.942
1.030
1.035
5.207
5.181
2.363
2.456
4.756
4.778
Aug-14
Sep-14
1.047
1.030
0.868
0.908
1.028
1.017
5.204
5.163
2.445
2.441
4.785
4.752
INTERNAL
59
Total RO
Lending
Total FCY
Lending
Total Lending
(RO+Fcy)

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Central Bank of Oman

Domestic Output Growth ..................................................................... 17

Price Situation ...................................................................................... 20

Fiscal Position ...................................................................................... 24

Monetary and Banking Conditions ....................................................... 31

Financial Markets ................................................................................. 43

VII. Foreign Trade and Balance of Payments .............................................. 48

The macroeconomic situation in the Sultanate has remained favorable in recent

Hamood Sangour Al-Zadjali

Mid-Year Review of the Omani Economy 2014

The macroeconomic situation in the Sultanate has remained favorable in recent

surpluses in fiscal and balance of payment positions. The evolution of monetary

Omans banking sector comprises 7 Local Commercial banks, 9 foreign banks, 2

commercial banks increased by 9.5 percent to RO 24.6 billion in September 2014.

inflation to remain moderate in most GCC countries because of decreasing

According to the IMF, Omans fiscal

Mid-Year Review of the Omani Economy 2014

Global Economic Situation

1. World Output (Growth Rate)

Domestic Output Growth

According to preliminary data on national accounts, the Sultanate's Gross Domestic

Chart 2: Nominal Growth Rate of Petroleum

Chart 1: Oil Production and Prices

Price (right scale)

Table 2: Oil Prices, Production & Exports

Analyzing the trend in economic diversification, the period January-September 2014

restaurants at 8.5 percent, transport and communications at 7.0 percent, public

a) Average Inflation Rate

b) Point-to-Point Inflation Rate

Source: National Center for Statistics and Information.

Table 3: Sultanate Consumer Price Index: Annual Percent Change

1 Food,& non- alcoholic beverages

3 Clothing & Footwear

4 Housing, Water, Electricity, Gas

5 Furnishings, household equipment

9 Recreation and Culture

11 Restaurants and Hotels

12 Miscellaneous goods and services

GENERAL PRICE INDEX

@: Data pertains to January-September, 2014.

1 Foods& non-alcoholic beverages

3 Clothing & Footwear

4 Housing, water, electricity, gas

5 Furnishings, household equipment

9 Recreation & Culture

11 Restaurants and Hotels

12 Miscellaneous and Services

@: Data pertains to January-September, 2014.

Components of Government Expenditure

Participation & Other Expenses

Source: Ministry of Finance.

Table 5 : Fiscal Balance in Oman

(Rial Omani Million)

6748.4 7916.5 10624.7 13474.5 13907.6 10480.1 10463.4

(i) Oil and Gas Revenues

8971.3 11415.0 11924.8

(ii) Other Revenues

II. TOTAL EXPENDITURE

7428.7 7965.3 10737.9 13555.1 13990.2 10140.2 10327.3

(i) Defence & Nat. Security

(ii) Civil Ministries

(i) Civil Ministries