The IMF Article IV consultation, 2005
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.
Although oil production declined by 5%, and fiscal expenditure rose by 13%, the strong oil price more than compensated for this deficit, giving rise to a budget surplus of almost 5%. The IMF praised Oman's sound macroeconomic management.
However, despite continuing development of the nonhydrocarbon sector, the IMF directors urged Oman to continue policies of economic diversification and job creation in the face of dwindling oil reserves and rapid population growth. Although Oman is developing its gas reserves to provide energy for industrial development, chiefly at the industrial complexes at Sohar and at Sur, the directors advised that Oman should assess the viability of these industries should the country have to rely on imports of gas in the future, rather than domestic sources.
Which rather raises the question of how much gas Oman can actually rely on, let alone oil. According to the most recent US Energy Information Administration report, Oman has less than 20 years of oil left at current rates of production. The gas is associated with the oil, or is in adjacent reserves, which implies that there are not likely to be large discoveries of independent gas reserves forthcoming.
In this light, the IMF cautioned that although it understood that Oman needed to place significant capital expenditure on development of the gas-based industries, the country also needed to assess the sustainability of the nonhydrocarbon fiscal deficit, and to adopt a medium-term budget consistent with long-term fiscal sustainability. Long words to say that you cannot rely on gas alone.
The IMF directors emphasised the need to safeguard spending on education and health, and underlined the need to strengthen and diversify the revenue base, especially as oil prospects weaken. They welcomed preliminary steps to introduce VAT (value added tax) within the GCC states, although this has been just one of the recommendations to help boost foreign investment since the 2001 consultation, and was re-emphasised in the 2003 report.
While the authorities have been preparing the legal and regulatory groundwork for privatisation of state-owned industries, the IMF directors would like to see intensified efforts to reinvigorate the privatisation programme. The 2001 consultation particularly recommended privatisation of the power sector. As yet, only the state-owned telecommunications operator, Omantel, has been divested. (June 2005)
Notably, the IMF recommended a freeze on Omanisation quotas, until a cadre of Omanis trained to an appropriate advanced level were able to take over jobs from expatriates. "They recommended that Omanization targets be pursued as broad guideposts rather than strict numerical objectives." They also recommended that the Omani authorities should reconsider plans for imposing a matrix of minimum wages by sector and type of job, which they suggested could seriously harm the competitiveness of existing business and deter potential investors.
In a separate exercise on Oman's participation in the General Data Dissemination System (GDDS), the IMF encouraged the authorities to provide labour market statistics, including unemployment data, which are not currently available.
