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Oman published its annual budget on January 1st. The minister for national economy, Ahmed bin Abdulnabi Macki, said that government spending would increase by 12% compared with 2009 to 7.18 billion rials ($18.7bn) in 2010, compared with projected revenues of 6.424 billion rials, based on an oil price of $50 a barrel. Oil and gas revenues would account for 76% of government income.

The deficit will be covered by withdrawals from the State General Reserve Fund.

Government figures showed that Oman sold its oil at an average price of $51.85 a barrel in January to September last year, whereas its 2009 budget was based on a figure of $45 a barrel of oil.

Since Oman is not a member of OPEC, the country was not compelled to abide by production quotas and increased daily production of oil to 806,000 barrels in the first nine months of 2009, a rise of 7.5% compared to the same period in the previous year.

937 million rials have been allocated for expenditure on projects that will create 4,000 jobs for nationals in the labour market, including water desalination plants, schools, roads and hospitals . At which one's eyes widen. Did the minister mean that Omani nationals would actually be building these projects rather than the Asian labourers who are normally imported to carry out menial work?

"Oman's total debt as of the end of 2009 stood at 722 million Omani riyals ($1.88 billion), with domestic debt accounting for 252 million riyals of the total figure."

Major infrastructure projects will continue. Duqm Port is expected to be ready by 2012.

Macki reiterated yet again that Oman would not be joining the Gulf currency union. Neither had it any intention of changing its currency peg from the US dollar. The Sultanate left the union in 2006.

News has finally been published in Abu Dhabi's The National about Moody's downrating of Blue City bonds.

I first wrote about this after spotting a couple of sentences in Project Finance magazine three weeks ago. Also see Interesting Times for Blue City. There was a lot of discussion but few verifiable facts.

The National's article confirms that

"Moody’s Investor Services downgraded about US$399 million (Dh1.47 billion) of senior notes to “Ba1” from “Baa3”. The rating is now below investment grade. An official at Moody's said the project "had entered a challenging period."

As of August, the company in charge of the first phase of development, Blue City Investments 1, had booked only $30.6m in sales, compared with a target of $101m. In an interview in September, Mr Russell told The National that sales had risen closer to $50m, but that was well below the Nov 7 target of $186m."

Wael al Lawati, the chief executive of Omran, the government's tourism and development company, was reported to have said that sales are slowing and credit harder to come by, particularly for projects in their earliest stages, such as Blue City.

Mr al-Lawati did say that the Omani government was committed to all outstanding real estate projects, perhaps opening the door for an injection of government cash at some stage. That would be complicated by outstanding legal issues.

"Blue City officials said they would not disclose the project’s sales for the current period or comment on the Moody’s report."

The Times of Oman published an article about a visit to Al Madina al-Zarqa (the new name for the project) from International College of Engineering and Management and German University of Technology in Oman two days ago. Marketing staff explained the purpose of the city and showed a video presentation. It wasn't clear whether students actually went on site but I noted that:

"The visit also highlighted the importance of occupational safety on site, especially in large projects such as Al Madina A’Zarqa – which has until now recorded two million man hours without injuries and over 500 hours without a loss time injury (LTI)."

I did have an email from someone employed on the project yesterday who assured me that both Turkish and Greek contractors were on site, working for AECO LLC.

He bewailed, "How can any Omani expect foreign investors to act if they themselves do not believe in the project?"

Food for thought. But more than that, how do nationals connect with the declared government objective of diversifying from oil? Al Madina al-Zarqa was intended to provide stimulus to this goal, creating a micro-economy in its own right, with jobs and services.

If Omanis can't identify with that goal, why not?

World news agencies reported yesterday that Oman's minister of commerce and industry, Maqbool Ali Sultan, had announced a RO150 million (US$389 million) bail-out of the Muscat Securities Market (MSM), Oman's stock market.

The value of the MSM index has fallen from 11554.69 points at the end of May 2008 to 5,846.19 on November 17th.

In October, Mr Sultan had attempted to allay fears of a financial meltdown, reminding his listeners that Oman had one of the best-performing markets in the Gulf countries, even though it is the smallest bourse, and that the 'earning per share is slightly less than 9 per cent.'

Furthermore, "profits had grown by more than 42% in the third quarter of this year. Listed companies had achieved 54 per cent growth or RO411 million profits during the first half of this year against RO266 million in the same period last year."

At the end of March this year, 30% of stocks were owned by foreign investors. These investors have retreated and the loss of confidence has been contagious. Even successful companies such as Galfar Engineering and Renaissance Services have not been immune from selling.

The Omani government is putting in 60% of the bail-out funds while the private sector and pension funds are contributing the remaining 40%. The objective is to buy up shares that no-one else wants to buy, in a bid to stabilise the market.

Care will be needed in deciding when it would be appropriate for the fund to resell the shares it has bought back to the market, in order to avoid another downward spiral in prices. The question remains as to whether the move was in response to broad market conditions or as a result of pressure from small investors.

The market gained three percent once the news had been announced.

Oman's fund is modest. Kuwait's sovereign wealth fund is to pump at least 1billion Kuwaiti dinars into Kuwait's stock exchange over the next five years, while the "Qatar Investment Authority said last month that it would buy between 10 per cent and 20 per cent of banks’ shares on the Qatar bourse, at a cost of about $5.3bn."

Oman's Oil and Gas minister, HE Mohammad bin Hamad bin Seif al-Rumhy, has conceded that Oman will have to slow down oil and gas development projects and possibly also the Duqm Refining and Petrochemical Complex as a result of the global financial crisis.

Rumhi was talking to a Reuters correspondent at the Abu Dhabi International Petroleum Exhibition and Conference at which Gordon Brown, the British Prime Minister, spoke at his first appointment in the UAE, on his four-day tour of the Gulf. Brown is seeking to raise funds at the conference on behalf of the International Monetary Fund (IMF) to assist countries badly hit by the crisis.

Although Rumhi's pronouncement might be thought to tally with the caution that could accompany drafting of next year's budget, (see my previous posting) , he stated that the problem actually lies with external project finance. It's far more difficult to raise funds now than even just six months ago. Even if foreign loans are to pay for these downstream projects, Oman has to guarantee the payback.

It doesn't help that the development costs are rising.

And while Iran remains ebullient about Oman's cooperation in development of the Kish oil field, Rumhi would say only that talks are still ongoing.

The UAE's oil minister announced this morning that the UAE had implemented oil production cuts agreed by OPEC. Kuwait and Nigeria were said to have informed customers that there would be cuts in supply from December. Iran is reported to have told the Indian Oil Corporation that supply would be reduced by 5% from this month. But there's no word yet of imminent production cuts by Saudi Arabia, the biggest oil producer.

Oman is not a member of OPEC, but keeps an interested watching brief. Read this very interesting background on HE Muhammad al-Rumhi, his plans for Petroleum Development Oman and Qalhat LNG, and the development of Oman's oil and gas industry. Rumhi's stated aim is to optimise oil and gas production as a long-term strategy in Oman.

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As a measure of the impact of inflation in Oman, the total cost of The Wave, a real estate project near Muscat has doubled from '$2 billion (Dh7.3bn) to $4bn since its launch nearly two years ago.' Nick Smith, the CEO, blamed inflation for 15-20% of the increase in project cost. The remainder is due to the increased construction costs for building 'new phases and hotels.' ie, amending the project spec.

Last week, the Financial Affairs and Energy Resources Council reviewed the state budget estimates for the coming year, which will be unveiled at the beginning of January 2009.

Government ministries will have been working for months on their own budget estimates before figures were presented to this meeting.

On the day that the article was published, the price of Oman 1M oil was trading at around $65 a barrel. Today, the price stands at just over $58 a barrel, up by $4 a barrel from the previous day's closure.

In the face of an obvious global financial downturn, the Council nevertheless chose to set the state budget "on the assumption that oil will be priced at $55 per barrel."

This budget estimate was still more generous than that for the 2008 budget which was set at £45 a barrel. Considerable detail on budgetary figures and expenditure for 2008 is included in that article.

In January this year, a report from Moody's Investors was quoted by Emirates 24/7 as saying that GCC countries, of which Oman is one, could find it hard to curb expenditure growth in the face of rising inflation. For example, Oman hiked the salaries of government employees by 15% in 2007 as inflation began to bite.

Oman's inflation rate has risen by double figures every month this year. Inflation slowed from 14% in June to 13.7% in July but remained unchanged in August.

Perhaps the quoted figure of $55 reflects what is needed to maintain required levels of government spending as well as to sustain the development plans announced at the beginning of the year.

Nevertheless, a breakeven price of $76 a barrel has been quoted for Oman, bearing in mind that economists do differ substantially over actual figures.

Will there be retrenchment, or a standing-still?

"Oman’s actual budget surplus peaked at an all-time high of RO1.567 billion in the first eight months of 2008 compared with a surplus of RO652.4m in the same period of 2007" according to the Times of Oman on 23rd October. With luck, the State Reserve Fund will be able to step in and cover any deficit, should that be required.

I noted this paragraph in the January story, quoting Ahmed bin Abdulnabi Macki, minister of national economy and deputy chairman of the Financial Affairs and Energy Resources Council:

With regard to the tourism sector, upon which the Sultanate very much counts, in view of its several potentials, the preliminary data for 2007 indicate that the sector is expected to grow by a rate exceeding 8 per cent. This is due to the increase in the accommodation capacities and the efforts exerted to promote the tourism in the Sultanate.

I wonder what Mr Macki's take is on the cancelled Christmas holidays for the disappointed 'very much counted' Christmas tourists.

I was not happy about the way in which I ended my previous post, as I could have continued going around in circles, as many professional commentators have been doing, speculating about the causes of inflation and measures to deal with it, without arriving at a satisfactory conclusion. I just stopped.

So it was no surprise that someone took me up on the illogicality of my closing deductions.

Leo Americanus (American Lion in translation, and at least he admits to being American) demurred at my quote from the Gulf News article, "If any country is found to be a currency manipulator, it is required to hold talks with the US government." Both the article, and LA in his related blog posting, pointed out that China was the last country to be accused of currency manipulation in 1994.

Implying that the Gulf countries are 'manipulating' the dollar is therefore totally erroneous in that kind of context. But I'm more interested in the subtleties of perception.

In that same article from Gulf News, a spokesman for Merrill Lynch was quoted:

"We believe that if the US were comfortable with the idea of GCC currency appreciation, it would ultimately make it much easier for the GCC authorities to break the dollar peg from a diplomatic standpoint."

thus conceding that there is a political element to the currency linkage between the Gulf countries, including Oman, and the USA.

Lo and behold, Henry Paulson, the US Treasury Secretary, was in Qatar, Saudi Arabia and UAE a week later following publication of the US Treasury's recent report to Congress on International Economic and Exchange Rate Policies (FX manipulation report), declaring that

"There is quite an awareness that the dollar peg does not influence inflation [in the Gulf countries] to a significant degree."

Nevertheless, he was also reported to have said that,

any move to de-link the greenback from the currencies 'is their sovereign decision', referring to the five nations of the Gulf Cooperation Council that peg their currency to the dollar,

thereby fueling speculation that the US might consider sanctioning depegging.

The investment management executive vice-president of Morgan Stanley Saudi Arabia wrote on 7th June that

"Although adjusting the peg would not address the underlying causes of inflation (which are primarily domestic in nature), it would have significant adverse impacts, and is probably the most effective way of reducing inflation in the short term."

According to Hamood Sangour Al Zadjali, Governor of the Central Bank of Oman (CBO), Oman has "No plans to remove the rial peg to the dollar since the dollar peg is best suited for our economy." The Sultanate is anticipating 12 percent growth this year, thanks to higher oil prices. The increase in money supply is driving growth in infrastructure and real estate construction as well as in oil exploration services and equipment. It's also driving up rents, coupled with increased demand for accommodation, and adding to land and property speculation.

Oman has opted out of Gulf currency union, inasmuch as the official position is that the dollar peg to the Omani Rial "has helped [the country] attract foreign investments."

UAE Central Bank Governor Sultan Nasser Al Suwaidi admitted that

"High inflation rates were never a concern before, and, although it is a temporary phenomenon, yet now it is indeed the factor behind the differences in opinion at this stage, and it can defer the issuance of the single currency beyond 2010."

The dollar peg was not the only subject under discussion with Mr Paulson apparently. Talks were also said to cover "investments in the United States and the impact of high oil prices."

I trust Paulson was not ridiculed in quite the same way as Britain's Gordon Brown was in Arab News following his meeting with OPEC producers in Saudi Arabia. Brown asked OPEC to "invest in his plans to make Britain less oil-dependent [ ] pouring their profits into Britain’s new wind, solar and nuclear power stations." Dubai and Qatar allegedly showed merely polite interest in the proposal.

Paulson was indeed reported to have asked the GCC countries to "invest in a fund to promote clean energy technology that would be run by the World Bank."

The other issue was investment. A figure in an article from Resource Investor shows that the GCC countries have a collective investment in the USA of around $300 billion, divided fairly equally between equity and debt. The group ranks 11th out of 11 investing countries shown. China, which comes second in the rankings, owns around $900 billion of US debt and just $20 billion in equity.

What better way of showing commitment to the US dollar than by buying a bigger chunk of Uncle Sam? Providing, of course, that it stops short at economic investment, rather than economic investment which could be leveraged as a political tool. Cast your mind back to the controversy caused when Dubai Ports World bid to take over six US ports.

I'd suggest reading a recent article entitled 'Speculative Oil', published by Oxford Business Group on 23rd June on the various factors contributing to the rising price of oil, including the actions of financial speculators and hedge funds.

Last week's edition of The Economist carried a cover in which the giant spectre of inflation lurked beneath an escalator of well-heeled business people.

The leader article suggested that it is not the rich countries that have most to fear from the effects of runaway inflation, but 'policymakers in emerging economies [who] are the ones who should take most heed' of the return of giant inflation. Too many are assuming that the current situation is a short-term supply shock and are relying on price controls and subsidies to cap prices rather than by raising interest rates.

Loose monetary policy in the 1970s opened the door to record rates of inflation. Loose monetary policy is currently characteristic of the emerging economies of the Gulf region, including Oman, where the currencies are linked to the dollar, and concurrently where growth in prices has been highest.

The economic history of the 1970s could repeat itself. Starkly, The Economist Warns that "the longer emerging economies hold down their exchange rates, the greater the risk of rising global inflation." Instead, the Gulf governments are following US moves. Since this doesn't make economic sense, it's all to easy to assume that political influences are at work.

The US Federal Reserve cut interest rates to just 2% at the end of April, a move mirrored almost immediately by the UAE Central Bank since the dirham is pegged to the dollar. As a result of the continuing weakness of the US dollar, and the dirham link, European and Russian investors have been crowding in to UAE to buy property and assets, assuming that their investments are virtually risk-free, with Gulf currencies remaining committed to the dollar peg.

"Dubai property with its 6%-10% rental yield looks an excellent buy in a world of 2% money."

"Prices that look attractive today could be out of reach for many by the late autumn as a house price spiral takes off fuelled by lower and lower US interest rates. That could even prove to be the economic force that breaks the dirham peg."

But revaluation would bring its own problems, possibly attracting more investment which could raise inflation even further.

How much would that truly matter to the local market which continues, remorselessly, to entice the rich world to spend its wealth in Dubai? Are all nationals adequately housed? Oman's development plans appear pallid by comparison. Gulf News, almost looking over its shoulder in reporting that Oman currently had just one nine-hole golf course. although ten are planned, commented that Oman "must offer more than beach and sun if it is to compete with the Gulf tourism hub of Dubai."

While property remains attractive to foreign investors, MEED has reported that international investors have become wary of investing in Middle Eastern debt because of the risk of appreciation of local currencies. Regional banks have adopted local currency tranches, with international banks raising the partner dollar funding.

To be honest, I haven't found it at all easy to discover the Central Bank of Oman base rate. By a devious process of deduction, I have arrived at a figure of around 8.5% - high by the standards of the US Federal Reserve. But swingeing increases in bank interest rates could help to deter monetary demand.

So given this wealth of overseas commentary, what can we make of an item published in the Times of Oman on 21st May, entitled How to tame the bull?

Broadly, the writer proposes the view that inflation is OK, really. At the time, she had not had the opportunity to read the warning words of The Economist quoted at the opening of this piece. If you believe The Economist instead of the Times of Oman, then policymakers in Oman are not taking this round of inflation seriously.

I can only quote.

"inflation is not as alarming a phenomenon as it is being made out to be. [It's] merely [ ] a balancing act of the market."

Most commentators would not agree with this statement. Since the 1970s, western central banks have been given increasing power to tackle the problem which actually restricts growth, if not driving it backwards.

"The one solution to keep the ill effects of inflation at bay is to minimise one’s needs and allocate income for needs in a better way, says a student of economics at a reputed university in the Sultanate."

So you have to resign yourself to restricting economic development?

Inflation is "not one-sided. If there is a rise in price somewhere, there is a fall somewhere too. While the price of rice may be high, your mobile bill is not as much as it used to be earlier. Also, with a recharge for RO1, you can now speak for longer than you could talk, say, in January this year. Cell phones and electronic items are also becoming cheaper by the day."

Excuse me? Does that mean that all residents of Oman can dismiss the rise in the price of rice, and by extension, other foodstuffs, without worrying about the consequences? Does the cost of a call on a cellphone truly compensate for a diminished diet? It's the rising cost of foodstuffs that is contributing most to inflation in emerging economies such as Oman. Are all Omani residents so well cushioned against the effects of inflation that they can absorb increased costs of foodstuffs? Having reached their current high price levels, commodity prices are not likely to come down, even with increased supply. It's just that the rate of increase in price will slow down with increased supply. UN warns about rising food costs

How to get out of this impasse? Well, Gulf News reported on 26th May that the US had hinted that it might countenance revaluation of the Gulf currencies. A US Treasury report to Congress on International Economic and Exchange Rate Policies (FX manipulation report) hinted at a potential US nod for currency reforms in the Gulf.

"The US recognises significant appreciation pressures on the Gulf Cooperation Council (GCC) countries. From a fundamental standpoint, we believe the US authorities have hinted that there is a need for more exchange rate flexibility," said two currency analysts of Merrill Lynch.

It's a chink in the armour of the US treasury.

How long will it take for the US Treasury to relax its grip on the economies of the Gulf states?

"If any country is found to be a currency manipulator, it is required to hold talks with the US government."

So, Tmes of Oman, inflation isn't a temporary glitch.

Pulling in your belt and going hungry isn't going to make an iota's worth of difference. Lobbying the US treasury might. But who holds the power?

Ahmed bin Abdulnabi al-Macki's trip to the Far East appears to have been fruitful. Macki is Oman's Minister of National Economy. Aside from his launching of the giant crude oil tanker Mirbat in South Korea, he also wrapped up a deal in Vietnam on the 18th April.

The report of the meetings in the Times of Oman was couched strangely in diplomatic rather than commercial language. Macki and Vietnamese Finance Minister Vu Van Ninh were reported to have held talks, in which, "they discussed a number of issues that positively affect and further promote the joint cooperation in the field of commerce and economy between the two countries."

A year ago, Oman Oil Company (OOC) and PetroVietnam signed a memorandum of understanding in Muscat for joint cooperation in production and refining operations, exchange of expertise and joint investment, when Maqbool bin Ali Sultan, Oman’s minister of commerce and industry and OOC chairman, said that the MoU with PetroVietnam was part of OOC’s effort to widen its investments. Vietnam's production of crude oil is estimated at 350,000 barrels per day. The country has gas reserves of about 70 trillion cubic feet.

Vietnam's Deputy Prime Minister Nguyen Sinh Hung travelled to Muscat in December 2007. Macki announced then that in addition to the PetroVietnam agreement, Oman Oil, Oman Shipping and Omani Fund for Investment would start joint ventures in Vietnam.

In talks with Sayyid Fahd bin Mahmoud Al Said, Deputy Prime Minister of the Council of Ministers, "Hung also called for Oman to open its doors to more Vietnamese migrant workers, saying the country's well trained and experienced computer engineers, health workers and construction workers could help meet the sultanate's needs for skilled labour. This could be beneficial for the sultanate, which has been experiencing a shortage of manpower as well-trained employees leaving the country for better paying jobs elsewhere. [ ] A memorandum of understanding was signed [to this effect] on December 9 between Oman's manpower ministry and the Vietnamese social affairs ministry setting out the initial steps to allow for the exchange of labour between the two countries." from Oxford Business Group, 11th December 2007.

In 2006, Oman’s imports from Vietnam amounted to $ 5 million, while Oman’s exports to Vietnam stood at $ 2 million.

The signing of the trade deal last week was presumably an outcome of last year's consultations in Hanoi and Muscat.

Macki was reported to have said that "Oman wants to cooperate with Vietnam in finance-banking, oil and gas, coal, real estate and resort building. Oman is also willing to train and receive Vietnamese guest workers."

The Vietnamese News Media have been more forthcoming. Unspecified Omani companies signed an agreement to form a joint-venture company backed by $100 million, with Oman contributing 75% of the funds and the balance coming from Vietnam's State Capital Investment Corporation. Oman's State General Reserve, Oman's sovereign wealth fund, was named as an investor in Vinaconex Tourist Development (Vietnam Construction & Import - Export Corp), possibly through the Oman Investment Fund.

The World Travel and Tourism Council (WTTC) predicts that Vietnam has the world's fourth fastest growing tourist demand over the next ten years, certainly beating Oman.

Remarks by Philip Atkinson, Regional Director of Dubai-based Limitless, the international real estate arm of Dubai World, indicate that a lot of work is needed first to transform Vietnam's transport infrastructure before investing heavily in tourist development. Even so, the country has a policy similar to Oman in preferring to attract high-income tourists. As in Muscat, rooms in Ho Chi Minh City can come at a premium. Large stretches of pristine coastline could be transformed, not altogether for the better in my view, into prime waterfront real estate. See a report on Vietnam in this week's Economist.

The two countries also signed an agreement on double taxation avoidance and income tax evasion prevention.

The agreement provides for 1,000 Vietnamese labourers to come and train in Oman, presumably in the gas and oil sector. Furthermore, the report said that Oman also wanted to import 40,000-50,000 tonnes of Vietnamese rice.

Oman would be favoured if it received rice imports. The price of rice has risen 42% in the first quarter of 2008 as well as doubling last year. Vietnam is one of those countries that have imposed export restrictions on the grain thus contributing to the rocketing price of rice.

Thus in one stroke, the minister for national economy has alleviated labour supply and food shortage problems in Oman. How effectively remains to be seen.


NB. My apologies to anyone who read this item thinking that it really was a $1 billion deal. It's just that earlier reports had speculated that the amount COULD be $1 billion. Check the Vietnamese News Agency report for confirmation.

Oman held a global economic forum this week. But the main news that reached the international press was that inflation had risen in the country by 11 % in February following a 10% rise in January. The rate of inflation has doubled within the last eight months. Basic foodstuffs have increased in price by 24-50% while rents have risen 14.1%.

The forum gave journalists the opportunity to question senior government and banking figures on the sidelines of the presentations.

Reuters, reported in the Khaleej Times, quoted the governor of the Central Bank of Oman, Hamood Sangour al-Zadjali as saying “Oman needs to slow economic expansion, on money we spend on big projects.”

This is easier said than done. Higher oil prices have lubricated the Sultanate's money supply. The projects to which Mr Al Zadjali was presumably alluding, have been underway for some years now. Since the CBO has been obliged to follow American monetary policy, it can't even raise interest rates to deter investment and spending.

The only anti-inflation measure that the CBO has been able to adopt has been to increase bank reserve requirements to five percent, thereby cutting the amount of money available for loans.

Numerous luxury real estate developments are in the pipeline. I don't read about developers building modest homes for people who haven't got the funds to snap up prime waterfront duplexes.

Still, in order to promote the Sultanate's avowed upmarket tourism policy, the country needs to build more luxury accommodation and hotel rooms, the price of cement and steel notwithstanding.

Mr al-Zadjali's other remark, that 'For private people like you and I, we need to reduce our personal spending and save more money, [so that] we can reduce consumption demand and reduce inflation. There is no other way.' was vaguely reminiscent of Queen Marie-Antoinette's response to being told that the people could not buy bread. 'Let them eat cake,' she replied.

Even when I was waiting in bank queues in Muscat eight years or so ago, friendly people told me of how they were in hock to the banks at high interest rates. Everybody seemed to be in debt.

His Majesty's generous gesture of a 43% pay rise to government employees in February, was really a gesture long overdue. It wasn't a universal pay hike. Senior civil servants at higher wage bands got just five percent. Salary scales had not altered in years. It would be more appropriate in future to make annual reviews and to raise pay scales accordingly.

On top of this, expatriates grumble about the diminishing value of their wages, since the Omani Riyal is linked to the US dollar. Where 70% of the national population is in government employ, there is a significant structural imbalance in the labour market.

I rather think that the consequences of aspiring to higher living standards while paying Asian labour rates, is catching up with the Gulf countries as a whole.

National Economy Minister Ahmad bin Abdul-Nabi Macki's statement that “There is no quick fix. [ ] Inflation will take its natural course in 2008," concurs with The Economist's view that the Gulf States are prepared to sit out the blip, in their estimate that the dollar will revive. After all, they have been down this road before with economic cycles of boom and retrenchments being caused by fluctuations in the price of oil. Except that this time, the price of oil shows no sign of stabilising at all soon.

And that was all Macki had to say on the matter, apparently, other than remarking that 'We took measures of reducing imports and we also we requested wholesalers to reduce prices.'

Government measures to control food and rent prices are well-intentioned but actually interfere with market processes. Where demand is high and supply is scarce, the 'laws' of economics indicate that prices will rise inexorably.

Well, it's not as if the country is broke.

Some light reading: The Subprime Crisis - and the Middle East from Zawya.

Catching up with news headlines after I've been away can be a chore, so it's possible to miss events. The big story seemed to be the symposium held at the Royal Camp at Seeh al Rasiyat, Samail, to discuss the need to improve agricultural productivity. Sigh. We've been there before, improvements in agricultural productivity that is. But maybe more of that in another posting.

I also noted that senior ministerial and trade delegations from both Bulgaria and Turkey had visited Muscat last week.

Write-ups in both the Omani and regional English-speaking press really said very little beyond the usual bland statements that the countries would invest in each other and promote tourism. In the case of Turkey, the Oman Observer of 5th February said that Oman was hoping to learn from Turkey's experience in managing free trade zones, food processing and fishing. Turkey was reported to be keen to initiate projects that could benefit from the industry being created at Sohar.

As for the visit of Roumen Ocharov, Bulgarian Minister of Economy and Energy, we learnt little more than that Oman and Bulgaria had signed an agreement for encouraging and protecting joint investment. Ahmed bin Abdulnabi Macki, Minister of National Economy and Deputy Chairman of the Financial Affairs and Energy Resources Council, who signed on behalf of the Oman government told the Oman News Agency (ONA) that 'the agreement would provide a legal framework that would achieve mutual benefits for both sides, and encourage the growth of joint investments in public and private sectors.' Oman Observer, 4th February.

The Bulgarian media has been more explicit without giving precise details - which of course may not have been decided yet. The Sofia News Agency reported on 4th February that "Oman Oil has said it was ready to invest in a EUR 700 M trans-Balkan oil pipeline that would carry Urals and Caspian crude from Bulgaria's Bourgas to the Greek port of Alexandroupolis [and is] has expressed interest in investing in a EUR 4 B nuclear power plant in Bulgaria."

That's right. A nuclear power plant.

Another Bulgarian website said that 'Oman wants to participate in the construction of NPP Belene.'

Bulgaria gets 40% of its power supply from nuclear power units at Kozloduy, near the Romanian border. Almost 12% of the electricity has been exported to Greece, Turkey, Serbia and Macedonia. Bulgaria was vital in supplying power for the Athens Olympic games.

But two units have had to close at Kozloduy at the insistence of the EU, as a pre-condition for Bulgaria becoming a EU member. This means that there will no longer be spare capacity of electrical power for export.

Work began on a second site for nuclear reactors at Belene in 1987, but was abandoned in 1991 due to lack of funds. This is the site in which Oman Oil is alleged to be interested in investing. The new units are scheduled to come online in 2013 with input from Russia, France, Germany, with possible partners from Italy and the Czech Republic. Japan is training key Bulgarian personnel.

The new units at Belene will satisfy stringent western European safety standards and therefore be more acceptable to the EU.

There is another question in my mind. Did that agreement signed between Oman and Bulgaria also mention technology transfer? Given recent announcements that the Gulf states intended to hold talks with the International Atomic Energy Agency (IAEA) in order to outline plans for a joint programme for the use of nuclear technology for peaceful purposes, is this particular investment coincidental or part of a move to acquire nuclear technology?

The only Gulf newspaper in which I have read about Oman's interest in developing Bulgaria's nuclear industry is the Gulf Daily News of Bahrain.

Bulgaria is a party to the Nuclear Non-Proliferation Treaty (NPT) as a non-nuclear weapons state.

Two Omani bloggers have commented this week on the RO650 million deficit forecast in this year's budget. This is 18% of the total revenue estimate and 6% of GDP. Oman's Minister of National Economy, Ahmed bin Abdulnabi Macki, owned that the deficit was large in absolute terms, but that it was unavoidable given the levels of expenditure to which the Omani government is committed in order to finance substantial infrastructure programmes as a medium-term route to sustain prosperity.

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Every two years or so, the Executive Board of the International Monetary Fund (IMF) meets with officials of member countries under Article IV of the IMF constitution to examine data on the fiscal state of the nation and arrangements "to promote a stable system of exchange rates". This is required for all member nations, of which Oman is one, who request financial assistance from the IMF.

Member nations must agree to (a) foster orderly economic growth (b) foster a monetary system which avoids erratic disruptions (c) avoid manipulation of exchange rates which might give a balance of payment or other unfair advantage and (d) follow exchange policies compatible with Article IV. Oman's latest consultation based on data from 2004, was published earlier in December. Broadly, Oman's economic performance in 2004 was strong with real GDP growing at 4% and at 8% in the non-hydrocarbon sector.

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