Countries of the World/COUNTRYS.BIN/dp/0272/02723.txt

Text File | 1991-06-25 | 36KB | 579 lines

$Unique_ID{COW02723}
$Pretitle{385C}
$Title{Oman
Chapter 1C.   Public Finance}
$Subtitle{}
$Author{Kenneth Clare, Donnald M. Seekins}
$Affiliation{HQ, Department of the Army}
$Subject{government
oman
percent
sultan
qaboos
million
bank
council
development
dhofar}
$Date{1985}
$Log{His Majesty Sultan Qaboos*0272301.scf
Figure 20.*0272302.scf
}
Country:     Oman
Book:        Persian Gulf States, An Area Study: Oman
Author:      Kenneth Clare, Donnald M. Seekins
Affiliation: HQ, Department of the Army
Date:        1985

Chapter 1C.   Public Finance

     Before the accession of Qaboos, virtually no distinction was made
between the finances of the sultan himself and those of the sultanate. Oman's
first government budget, therefore, dates back only to 1971.

     Between 1978 and 1982 budgeted revenues increased from OR502 million to
ORI.2 billion, current expenditures more than doubled, from OR437 million to
OR970 million, while development expenditures more than tripled, from OR123
million to OR395 million (see table 31, Appendix A). Deficits occurred in
1978, 1980, and 1982, but surpluses developed in 1979 and 1981. Provisional
figures issued in January 1984 indicated that both revenue and expenditures
increased sharply in 1983 from those of 1982 and resulted in a further deficit
in 1983. Moreover, a budget deficit was projected for 1984 (see table 32,
Appendix A).

     Petroleum revenues, representing 90 percent of total revenues, increased
in each year from 1978 to 1981 but declined to OR1.1 billion in 1982 as a
result of a reduction in international oil prices. According to provisional
data, oil revenue in 1983 reached a record level of OR1.2 billion.

     In 1982 revenues from non-oil sources accounted for about 10 percent of
the total. They consisted mainly of customs duties levied on imports, income
tax on corporate bodies, charges for public utilities, and investment income
on government assets placed abroad. Although a relatively small part of the
total, revenues from these sources seem destined to increase as a result of
anticipated growth in imports and rapid expansion of the commercial sector.
Nevertheless, in anticipation of the time when oil revenues will decline,
analysts have suggested that it would appear prudent for Oman to widen its tax
base by introducing personal income taxes and property taxes.

     The high level of expenditures for defense placed a heavy burden on the
government's financial resources in the 1978-82 period. In 1982 defense and
security represented 60 percent of current expenditures, or 42 percent of
total expenditures. Despite the termination of hostilities in Dhofar in the
mid-1970s, defense expenditures continued at relatively high levels into the
early 1980s.

Money, Credit, and Prices

     In 1984 the Omani rial, which replaced the Gulf Indian rupee in May 1970,
continued to be a freely convertible currency. The gold content of the rial
has remained unchanged since its introduction. The rial was in effect pegged
to the United States dollar, whereas the exchange rates for other currencies
were based on the London market (see table 33, Appendix A).

     Under a banking law issued in November 1974, the government in April 1975
established the Central Bank of Oman. The institution replaced the Oman
Currency Board, which since 1972 had been responsible for issuing currency,
managing government accounts, and carrying out banking transactions with
commercial banks and international institutions. The Central Bank, capitalized
at OR2 million, was placed under the management of a board of governors
appointed by the sultan. The board possessed full authority to discharge all
the functions required for the operation of the Central Bank and the
supervision of commercial banking.

     The Central Bank's responsibilities included the management of the
government's foreign assets. It could make advances to the government to cover
temporary deficiencies in recurrent revenues (up to the maxima of 90 days and
an estimated 10 percent of recurrent revenues). It could purchase government
treasury bills and securities with a maximum maturity of 10 years. It also
could make advances to commercial banks and was empowered to buy, sell,
discount, and rediscount commercial paper.

     The number of commercial banks operating in Oman increased from three in
1972 to 14 in 1976 and 25 in 1982. Ten were subsidiaries of foreign-owned
banks. The 25 commercial banks in 1982 had 162 branches, many of which were in
the capital area. Under the 1974 banking law, in addition to the initial
capital requirement of OR500,000 and the reserve requirement of 5 percent of
deposits, each bank must maintain an interest-bearing account with the Central
Bank of 0.1 percent of its resources, including, for foreign institutions, the
total assets of the parent bank. The minimum deposit is OR50,000 and the
maximum OR500,000. In 1982 the Central Bank issued regulations setting a
maximum limit for foreign exchange exposure for each bank. In 1980 the Central
Bank set targets for "Omanization"-a government policy of replacing foreign
personnel with Omanis-in commercial banks.

     Commercial bank lending increased from OR208 million in 1976 to OR407
million in 1982. Credits to the private sector increased from OR122 million in
1976 to OR402 million in 1982. Loans to the government, which were 44 percent
of commercial lending in 1976, were only 1 percent of the total in 1982.
Deposits rose sharply. About one-half of the lending to the private sector has
been channeled to import trade, 16 percent to construction, 15 percent to
personal loans, and 4 percent to wholesale and retail trade.

     The Oman Development Bank was created in 1976, primarily to make loans
for industrial development. The government owns 40 percent of the shares,
regional and foreign institutions own another 40 percent, and 20 percent is
open for private Omani subscription. In 1981 the bank approved OR5.6 million
financing for 31 projects.

     The Bank for Agriculture and Fisheries was established in 1981, and the
government owned 98.9 percent of the capital. Its purpose is to make short-,
medium-, and long-term loans to individuals or enterprises for financing
activities in agriculture and fisheries. By mid-1983 the bank had six branches
and planned to open eight more by 1985. The Oman Housing Bank, established in
1977, has grown steadily and in 1981 made loans totaling OR30 million. Loans
to low- and medium-income borrowers represented 67 percent of the total value
of loans in 1981. Beginning in 1981 interest rates on mortgages were
subsidized by the government. Rates were as low as 2 percent per annum for low
income borrowers.

     Oman experienced a high rate of inflation in the 1970-76 period. During
the 1975-76 period inflation ran at rates of 15 to 20 percent but fell below
10 percent from 1978 to 1979, mainly as a result of the controls on growth of
government expenditures. The rate accelerated to 10 to 15 percent from 1980 to
1981, principally because of increases in rents, but slowed again to well
under 5 percent in 1982. A decline in import prices in 1982 exerted downward
pressure on domestic prices, and the housing shortage also eased considerably
in 1982.

Foreign Trade and Balance of Payments

     Oil shipments have accounted for the bulk of the value of Oman's export
trade. Development goods and defense items dominated imports; increasing
personal incomes, however-especially among the large number of expatriates
resulted in a rapid boost in the demand for, and importation of, consumer
goods in the early 1980s.

     Nearly all of Oman's petroleum is exported as crude oil; only a small
proportion of the production is refined locally for the domestic market. Oil
exports for 1982 were 119 million barrels, down from 134 million in 1976 but
higher than in some more recent years. Payments to the Oman government for the
oil extracted totaled OR1.4 billion in 1982 and OR1.5 billion in 1981.

     Exports of commodities