IT is my pleasure to meet with you today on the occasion of the issuance of the Royal Decree No (1/2012) ratifying the State’s General Budget (SGB) for the fiscal year 2012, the second year of the Eighth Five-Year Development Plan (2011-2015) and review with you the main economic indicators of the national economy performance for the year 2011 and elucidate the major features and Objectives of the SGB.
Firstly: The Global Economy and the International Oil Prices
In the year 2011, the global economy faced difficult challenges represented by the aggravation of the international financial and economic crisis arising from the fragile structure of the global economy, sovereign debts crisis in the euro zone and the political turmoil in the Middle East and North Africa region as well as the natural disasters that befell Japan.
The World Economic Outlook report for the year 2012, issued by International Monetary Fund, indicates that the world economy, in the year 2011, will achieve growth of (4 per cent) compared with (5 per cent) in the year 2010.
As for the year 2012 the forecasts suggest that the growth rate of the world economy will be within the limits of (4 per cent), as the advanced economies are expected to register a growth of (1.9 per cent), while the emerging economies will register a growth rate of (5.1 per cent).
As regards to the oil prices in the global markets, despite of the severity of the global financial and economic crisis and its impact on the advanced economies in particular, the prices remained cohesive and stable at the level of $100 per barrel and it is expected that Brent average price to amount to about $111 per barrel. This stability of the oil prices is supported in terms of the demand by the strong growth of the emerging economies, especially Indian and China, and in terms of the supply by the risks, relating to the oil supplies, arising from the political turmoil in the Middle East and North Africa region.
Secondly: The Performance of the National Economy during the year 2011
The national economy continued, in the year 2011, its good performance in spite of the severity of the international financial and economic crisis that affected most of the advanced economies. This strong performance is attributed to the increase in the rates of the oil production, the remarkable improvement in its prices and the expansionary fiscal and monetary policies adopted by the Government.
The preliminary forecasts of the Gross Domestic Product (GDP) suggest that the national economy in the year 2011 will achieve a growth of (7 per cent) exceeding the growth rate achieved in the previous year (2010) that amounted to (6 per cent). This growth in national economy is based on the added value of the non-oil activities that are projected to achieve a growth rate of (10 per cent) compared with (2 per cent) for the oil activities. This is also attributed to the increased domestic demand as well as the increased non-oil exports by (20 per cent) compared with the year 2010.
Regarding the Public Finance, the State General Budget for the fiscal year 2011 was approved with a total expenditure amounting to RO 8,130 million and a deficit amounting to RO 850 million and was based on the assumption of the oil price at $58, note that the average price of the Oman oil in the year 2011 amounted to about $102.
During the year, additional financial allocations have been approved that amounted to RO 1.8 billion, most of which was concentrated on the current civil and security expenditures bringing the deficit of the budget to about RO 2.6 billion. However, and as a result of the stable global oil prices at a higher level, the actual budget is expected to achieve a financial surplus that may reach about RO 1 billion, where an amount of RO 700 million will be used as a part of the means of funding for covering the deficit of the budget of the year 2012, while the remaining surplus, if any, in light of the final closing for the accounts of the fiscal year will be used to strengthen the financial reserves of the State.
As regards to the inflation indicators, and in spite of the higher general expenditure during the year and the impacts of the imported inflation, the inflation rate remained at the level of 4 per cent which is considered within the targeted limits for the period of the plan that were estimated by about 4 per cent.
The forecasts of the balance of payments suggest the growth of the surplus of the Sultanate’s external balances to good levels as a result of the increased oil and non-oil exports. The ratio of the surplus of the balance of trade to the GDP in the year 2011 is expected to increase to 34 per cent compared with about 32 per cent for the year 2010. It is also expected that the rate of the current balance surplus to amount to about 12 per cent of the GDP compared with about 9 per cent for the year 2010.
Regarding the performance of Muscat Securities Market during the year 2011 it has registered a decline in its activities compared with its activities in the year 2010 affected by global economic crisis like most of the other Arab and international financial markets, where the prices index witnessed retraction of about 15 per cent, as well as the market value which fell by 5 per cent while the value and the volume of the traded securities retracted by 22.98 per cent and 21.3 per cent respectively.
Thirdly: The Objectives of General Budget
The State General Budget (SGB), which has been prepared within the framework of the objectives and ends of the Eighth Five Year Plan and in harmony with the basic principles stipulated in the financial framework of the plan, it endeavours to achieve a set of objectives at the social and economic development side, the most important of these objectives are as follows:
n Stabilise the macro-economy and preserving the public finance balances and the gains achieved through the comprehensive development.
n Balance between the requirements of the economic development and social development.
n Achieve an economic growth of 7 per cent.
n Preserve the inflation at the same levels of the year 2011.
n Continue in implementing the economic diversification strategy and supporting the non-oil productive sectors in a way that leads to expanding the production base of the economy and creating employment opportunities for the nationals.
n Complete the implementation of the infrastructure projects such as airports, ports and roads.
n Give the priority to the requirements of the productive sectors such as tourism, agriculture and fisheries and supporting the industrial base through completing the provision of the infrastructure to the industrial estates and free zones.
n Continue in developing the capacities of the oil and gas sectors and implementing the exploration programmes aiming to promoting the production rates.
n Give the social dimension special importance in a way that complies with requirements of this stage of the development procession and the aspirations of the society through promoting the spending on education, training, employment, health, housing, water and improving the living standards of nationals.
n Encourage the private foreign and local investment as well as encouraging the establishment of small and medium enterprises through the provision of a stimulus investment environment, providing facilities and materialistic and in-kind incentives and establishing new industrial estates.
n Focus, through the partnership between the private sector and the Government, on establishing the large productive projects that bring an added value to the economy in terms of the generated income and the employment opportunities that they create.
n Activate the debt market and domestic saving by issuing medium and long term development bonds.
Fourthly: The Estimates of the General Budget for
the year 2012
The general revenues of the State for the year 2012 was estimated by about RO 8.8 billion against RO 7.3 billion in the budget of the fiscal year 2011, with an increase of RO 1.5 billion, i.e. 21 per cent. The oil and gas revenues constitute 81 per cent of the total revenues, whereas the current and capital revenues constitute 19 per cent thereof.
The oil revenues were calculated on the basis of average price $75 per barrel and average daily production of 915 thousand barrel per day.
The general expenditure approved in the budget amounts to about RO 10 billion, with an increase of RO 800 million over the revised expenditure of the previous year 2011, i.e. 9 per cent, and when compared with the original expenditure approved in the plan the increase reaches RO 1.9 billion, i.e. 23 per cent.
The current expenses amount to about RO 6.4 billion representing 64 per cent of the total general expenditures, of which RO 2.6 billion for covering the defence and security expenses and an amount of RO 3.5 billion for the current expenses of the civil Ministries.
The investment expenses amounts to about RO 2.7 billion, i.e. 27 per cent of the total general expenditure, of which an amount of RO 1.4 billion for covering the spending on the development projects and an amount of RO 1.3 billion for covering the expenses of oil and gas production.
As regards to the deficit, it is estimated to amount to RO 1.2 billion, i.e. 50 per cent of the GDP and the deficit will be covered from the means of funding approved in the budget including the issuance of development bonds to the domestic market amounting to RO 200 million.
Fifthly: The Spending Priorities
1) The budget for the year 2012 will provide about (36) thousand employment opportunity in the Government civil and military apparatuses, in addition to a number of (2,000) job that the Government companies will provide, note that the jobs provided during the year 2011 amounted to (94) thousand employment opportunity, of which (43) thousand job in the administrative and military apparatus of the state and a number of (2,100) job in the Government owned companies.
2) The estimated expenditure for the educational sector amounts to RO 1.3 billion, i.e. 13 per cent of the total public expenditure including the spending on the basic and general education for a number of 518 thousand student, as well as the spending on a number of 85 thousand internal and external mission including the existing and the additional missions that were approved at the end of the year 2011.
3) The provision of 5,000 training opportunities that are linked with the employment.
4) The estimated expenditure for the health sector amounts to about RO 500 million, i.e. 5 per cent of the total public expenditure.
5) The total expenditure of the social security and welfare amounts to RO 130 million for covering the pensions of the social security and welfare cases.
6) The development budget includes approbations amounting to RO 120 million for constructing a number of 2,500 housing units for the people with limited income.
7) The subsidy provided, directly and indirectly, to the nationals is estimated by about RO 1.181 billion as follows:
Omani Rial Million
1) Subsidy for vehicles fuel, diesel fuel and cooking gas. — 640
2. Subsidy for electricity tariff. — 230
3. Subsidy for water tariff. — 145
4. Subsidy for basic foodstuff commodities. — 22
5.Subsidy for the interests on the Housing and Development loans. — 27
6. Subsidy the equipment used by farmers and fishermen. — 10
7 Subsidy for the purchase of forages. — 12
8.Exemption from customs duties for some projects. — 50
9. Exemption from the income tax for some activities. — 35
10. Subsidy for the operations of the National Ferries Company. — 9
11.Subsidy for travel tickets to Salalah and Khassab (Oman Air) — 1
Six: Development Programme of the Civil Ministries for the Eighth
Five Year Plan (2011 – 2015)
The amended approbations of the Eighth Five Year Development Plan (2011-2015) as at the end of November 2011 amounted to about RO 13,693.3 million compared with the original approbations amounting to RO 12,056.4 million, with an increase of RO 1,636.9 million, i.e. 13 per cent, which represent the additional projects that have been developed that included all the economic sectors, in addition to promoting the approbations for some project in light of the results of the tenders.
Therefore the total approbations allocated for the first and the second years of the plan 2011 and 2012 and the projects continuing from the Seventh Plan will amount to RO 8,555 million, of which an amount of RO 1,634 million as the cost of the new projects scheduled to commence their implementation in the year 2012, the most important of those projects are as follows:
n Construction of Al Battinah express road at a cost of RO One billion.
n Building a number of 5 hospitals in Muscat, Al Sowaiq, Salalah, Khassab and Dhalkout at a cost of RO 238 million.
n Construction of 29 schools of the general education in the various regions of the Sultanate at a cost of RO 60 million.
n Improvements to the sport complexes in Khassab, Sohar and Salalah at a cost of RO 4 million.
n Establishment and development of fishing ports at Barka, Al Mousanaa, Diba and Al Ashkharah at a cost of RO 14 million.
n Establishing the commercial fishing port at Al Duqm at a cost of RO 35 million.
n Construction of centralised markets in some Governorates at a cost of RO 13 million.
n Providing the infrastructure to industrial estates in Samayil, Ibri and Al Duqm at a cost of RO 100 million.
n Construction of sewerage networks and plants in Barka, Al Mousanaa and Ibri, in addition to completing the sewerage projects in Muscat and Salalah at a cost of RO 141 million.
n Funding the tourism projects of the Oman Tourism Development Company with an amount of RO 124.
n Supply of water to Muscat and Qurayyat from Wadi Dhaiqah dam and establishing water distribution networks for villages of the Wilayat of Muscat and Wilayat of Sur at a cost of RO 70 million.
n Implementing projects in the scientific research and information technology fields. At a cost of RO 27 million.
Seven: Additions made to the volume of the expenditure approved for the Eighth
Five Year Plan
The total volume of the expenditure approved within the financial framework of the plan for the years 2011 – 2015 amounts to about RO 43 billion.
The additional obligations, resulting from the financial decisions taken by the Government in response to the social requirements such as providing employment opportunities, improving the living standards and the payment of the allowance to the unemployed (job seekers) and the other needs, amounted to about RO 11 billion, of which an amount of RO 9 billion towards the current civil and security expenses and about RO 2 billion for the development projects, thus the volume of the total expenditures increased to about RO 54 billion, i.e. 26 per cent, which considered very high especially because it coincided with the first year of the plan.
On this occasion, we pray to Almighty Allah to bestow prosperity upon our beloved country and its dear people and grant it enduring welfare and progress under the bright era of His Majesty Sultan Qaboos bin Said. I wish that this year to be a year of prosperity, security and peace and wish you a happy new year.