This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 MUSCAT 000066 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EPET MU
SUBJECT: OMAN'S 2006 BUDGET: SURPLUS FUELS INVESTMENT 
 
------- 
SUMMARY 
------- 
 
¶1. (U) High oil prices in 2005 led to a record Omani budget 
surplus of $3.8 billion and a blistering GDP growth of 21.7 
percent.  The 2006 budget, announced on January 1, projects 
massive government spending on industrial and tourism 
projects that could produce a deficit as large as 6 percent 
of GDP.  The government also unveiled its Seventh Five-Year 
Plan, to cover 2006-2010, which projects a hike in the 
average investment rate over that period to 24 percent of 
GDP.  End summary. 
 
---------------------------- 
BIG BUDGET FOLLOWS BOOM YEAR 
---------------------------- 
 
¶2. (U) National Economy Minister Ahmed Macki unveiled the 
Sultanate's 2006 budget (covering the calendar year) on 
January 1.  The budget calls for government expenditures of 
$10.9 billion, a steep 15 percent increase over the 2005 
budget projection, though only modestly higher than the $10.4 
billion actual expenditures for last year.  While government 
revenues for 2006 are projected to rise some 14.2 percent, 
the budget still anticipates a record deficit of $1.68 
billion, equivalent to 6 percent of GDP.  That statistic is 
put into perspective when weighed against the 2005 budget 
surplus of $3.8 billion.  Despite modestly lower oil 
production, the 2005 budget had forecast an average oil price 
of $23 per barrel, well below the actual average price of 
$43.73.  (Note: Omani budget makers traditionally use very 
conservative oil price estimates.  End note.)  The projected 
average price for 2006 is $32 per barrel, so sustained oil 
prices above that mark will substantially lower the projected 
deficit, as happened in 2005. 
 
¶3. (U) The 2006 budget forecasts an annual GDP growth rate of 
3 percent, as opposed to the meteoric 21.7 percent growth 
realized in 2005.  Among the beneficiaries of the increased 
spending is the education sector, which will receive a 17 
percent increase in expenditures.  Government expenditures on 
health are set to rise 13 percent.  The bulk of the new 
spending, however, will be on infrastructure and industrial 
projects, particularly in the oil and gas, power and water, 
and transportation sectors.  2006 defense and security is 
projected to reach $3.2 billion, just under 30 percent of 
total government expenditures. 
 
------------------ 
NEW FIVE-YEAR PLAN 
------------------ 
 
¶4. (U) Minister Macki also unveiled on January 1 the 
government's Seventh Five-Year Plan.  Once again, the plan 
forecasts heavy investment and emphasis on the growing 
industrial sector and tourism, as well as capital 
improvements in the oil and gas sector.  The Plan targets an 
average annual GDP growth rate of 3 percent (down from the 
4.5 percent GDP growth rate from 2000-2005), and an average 
annual budget deficit of 3.9 percent of GDP.  Budget 
forecasts are based on projected average oil prices for 
2006-2010 of $30, and a somewhat ambitious average daily oil 
production of 827,000 bpd.  (Note: Oman's oil production 
continued its slide in 2005, falling to 774,400 bpd over the 
first eight months of the year.  End note.)  The Five-Year 
Plan anticipates that several billion dollars of investment 
in enhanced oil recovery projects currently underway will 
reverse the steady decline in production. 
 
¶5. (U) The Seventh Five-Year Plan seeks to achieve a 7.5 
percent increase in non-oil activities in the economy, and 
nearly 12 percent growth in non-oil commodity exports.  Large 
projects slated for the period include expansion of Oman's 
two major airports, and construction of three new regional 
ones.  Port expansion is planned for Muscat, Sohar and 
Salalah, and a new port is to be constructed in Duqm.  A 
long-overdue wastewater system for Muscat, which, after 
several false-starts, only recently got underway, is also to 
be completed during the Seventh Five-Year Plan. 
 
------- 
COMMENT 
------- 
 
¶6. (SBU) While budgetary windfalls fed by elevated oil prices 
have often led rentier economies into ruinous policies, 
Oman's latest budget announcements seem to reflect a more 
realistic and sophisticated fiscal understanding.  Spending 
priorities reflect the government's focus on using its 
current robust oil revenues to build a sustainable, non-oil 
economy.  Employment-intensive sectors such as 
industrialization and tourism are a clear priority.  But 
despite Oman's free-market traditions, these development 
trends are driven primarily by government expenditures rather 
than private-sector investment. 
BALTIMORE