No light yet at the end of the tunnel - inflation in Oman
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.
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.
Comments
No comments yet