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(MENAFN - Times of Oman) The oil and gas sector continues to play a predominant role in the overall economic performance of Oman accounting for over 50 per cent of nominal gross domestic product (GDP), almost 80 per cent of net fiscal revenue and around 75 per cent of export earnings, Central Bank of Oman (CBO) Chief Executive Officer Hamoud bin Sangour Al Zadjali, told Times of Oman.
"Given the large contribution of the petroleum sector to Oman's economy, the price of oil plays an important and crucial role in economic activity in the country. The international price of crude oil currently appears to have stabilised at around $70 per barrel and this bodes well for the economy," he said.
"At this price, the overall fiscal position is expected to balance compared to the deficit anticipated in this year's budget with an assumed oil price of $45 per barrel," Al Zadjali added.
In an exclusive interview, the CBO chief executive, outlines in details the current state of economic activity in the Sultanate and the GCC at large.
How has been the performance of Omani banks in the first nine months of this year?
Commercial banks' total assets increased by 7.8 per cent to RO13.9 billion in September 2009 from RO12.9 billion a year ago. The expansion in assets was driven by a 11 per cent growth in credit, which stood at RO9.6 billion at the end of September 2009.
Aggregate deposits witnessed a growth of 12.6 per cent over its corresponding period in 2008 to reach RO8.9 billion. Core capital and reserves of commercial banks at the end of September 2009 amounted to RO1.63 billion, roughly representing 12 per cent of total assets. Provisional figures of net profits of commercial banks amounted to RO195 million for the period January to September 2009.
Are you happy with the current economic fundamentals?
The medium-term fundamentals of the economy are strong. The economic diversification programme of the government has made commendable progress and Oman has developed infrastructure to sustain the diversification programme. The banking system in Oman is sound due to appropriate regulatory policy and regular supervisory reviews.
Do you see any risks in the short term?
Global recession has affected all the Gulf countries mainly due to fall in crude oil prices. Consequently, Oman's nominal GDP has declined by 25.2 per cent in the first half of 2009 despite six per cent rise in crude oil production. The crude oil prices have recovered considerably during the recent period.
There are early signs of a global recovery. In view of this, we expect Oman's economy to do better in the second half of 2009.
Do you see signs of business confidence rising?
The business confidence has been improving around the world on expectation of an early recovery of the developed countries from the prolonged recession.
This has increased prices of crude oil considerably from the recent low. In the case of Oman, the government continues to sustain capital expenditure on various on-going projects. The CBO maintains accommodative monetary policy. Credit to private sector continues to rise. Hence, there is every reason to believe that business confidence is improving in Oman as well.
Banks in Oman are unlikely to use $1.7 billion left in support fund. What message does it imply?
Oman's banking sector remained insulated from the direct effects of the global financial crisis, since our banks were neither exposed to any toxic financial assets nor to the distressed global financial institutions. However, given the possibility of some indirect effects on liquidity particularly regarding concerns about roll over of short-term US dollar liabilities, the CBO opened two windows in consultation with the Government ensuring access to US dollar liquidity of up to $2 billion to the local banks.
Usage of this facility has, however, remained very modest and currently outstanding figures reveal borrowings of around $100 million only. This timely measure along with a strong regulatory framework was however, able to provide needed stability and confidence to the Sultanate's financial sector, particularly at the height of the global financial uncertainty. It is also comforting that our banks remain liquid and do not need to heavily resort to US dollar borrowing from the CBO.
The sentiments have improved regarding the financial crisis? What is your opinion about it?
There have been considerable improvements since the crisis in the functioning of financial markets in the developed countries. The credit spread has come down and the stress in credit and money markets have abated significantly. There are also early signs of recovery of real economic activities in many developed countries. As recovery is yet to have a firm footing, the G20 leaders have committed to continue with the stimulus policies until the recovery is secured. We are monitoring the external developments.
Will inflation continue to be a major threat to the GCC economies?
As of now, inflation is under control in most of the GCC countries, including Oman. However, the prices of essential commodities have started rising during the recent period. The GCC, being the importers of commodities, may be affected if the global prices of these commodities remain at an elevated level. We are keeping a close vigil over the prices of essential commodities in both domestic and international markets.
By Vinod Kumar PK
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