VZCZCXRO3022
RR RUEHDE RUEHDIR
DE RUEHMS #0029/01 0091254
ZNR UUUUU ZZH
R 091254Z JAN 07
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 7638
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MUSCAT 000029 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, EB/CBA, EB/IFD/OMA 
COMMERCE FOR ITA COBERG 
TREASURY FOR OIA VALVO 
 
E.O. 12958: N/A 
TAGS: ECON EINV EIND PGOV PREL MU
SUBJECT: BIGGER BUDGET ON TAP FOR OMAN IN 2007 
 
REF: 06 MUSCAT 1155 
 
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Summary 
------- 
 
¶1. (U) Oman's 2007 budget, recently unveiled by the Minister 
of National Economy, calls for increased expenditures in 
anticipation of increased revenues.  The government intends 
to plow a significant portion of the budget into 
investment-related initiatives to boost energy production and 
to diversify the economy through industrialization and the 
construction of infrastructure and tourism-related projects. 
The government projects a deficit for 2007; however, given 
the conservative estimates employed in calculating the 
budget, a surplus is most likely.  Initial figures for 2006 
show a 16.8% increase in GDP and a sizable budget surplus. 
According to the Minister, the government's need to retain 
control over fiscal policies in restructuring the economy led 
to the Sultanate's decision to defer membership in the 
proposed GCC monetary union.  End summary. 
 
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The Numbers 
----------- 
 
¶2. (SBU) On January 7, Minister of National Economy Ahmed bin 
Abdul Nabi Macki unveiled the Sultanate's budget for calendar 
year 2007, as approved by the Sultan via Royal Decree 1/2007 
on January 1.  The budget projects 2007 revenues to be 4.49 
billion Omani Rials (RO) (USD 11.99 billion), with 
expenditures predicted to equal 4.89 billion RO (USD 13.056 
billion).  While the budget leaves a projected deficit of 400 
million RO (USD 1.06 billion), which accounts for 3% of the 
GDP and 9% of revenues, the government will most likely 
record at least a small surplus at year's end, based on its 
tradition of conservatively estimating energy prices.  The 
government premised the budget on oil selling for USD 40 per 
barrel, with production estimated at 730,000 barrels per day. 
 Based on these figures, oil revenues are expected to account 
for 3 billion RO (USD 8.01 billion), or 67%, of anticipated 
government revenues, while gas revenues are projected to 
account for 550 million RO (USD 1.468 billion), or 12% of 
anticipated government revenues.  Macki predicted that GDP 
growth for 2007 would be roughly 6%. 
 
¶3. (U) Expenditures for 2007 are expected to increase by 653 
million RO (USD 1.743 billion), or 15% above 2006 spending 
levels.  Operating expenses for the ministries are projected 
to account for 33% of the anticipated expenditures, with 
education and healthcare expenses accounting for 50% of 
ministerial operations.  Spending on education is up 84 
million RO (USD 224.3 million), or 16%, over 2006 figures. 
The 609 million RO (USD 1.63 billion) the government has 
allocated for education will account for 38% of the 
ministerial operating budget, while the government will add 
another 242 million RO (USD 646 million) for education 
development projects.  Healthcare spending is up 6% over 2006 
figures to equal 199 million RO (USD 531 million).  Defense 
spending is estimated to reach 1.23 billion RO (USD 3.29 
billion) in 2007, roughly equal to the amount authorized in 
the 2006 budget.  Defense spending as a component of the 
overall budget, however, dropped from just under 30% in 2006 
to 25% in 2007. 
 
¶4. (U) An additional 33% of anticipated expenditures will be 
allocated to support development projects outlined in the 
seventh five-year plan (2006-2010), while 25% of the 
anticipated expenditures are earmarked for oil and gas 
production, representing an increase of 32% from 2006 
figures.  Total government salary costs are expected to equal 
1.25 billion RO (USD 3.34 billion), which takes into account 
the additional 130 million RO (USD 347 million) needed to 
cover the recently announced 15% public sector salary 
increase. 
 
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Investment Up 
------------- 
 
¶5. (U) The government intends in 2007 to spend 1.4 billion RO 
(USD 3.738 billion) more than in the past year on 
investment-related expenditures, with 575 million RO (USD 
1.535 billion) allocated to enhancing oil production 
capabilities, 400 million RO (USD 1.068 billion) on gas 
production capabilities, and 500 million RO (USD 1.335 
 
MUSCAT 00000029  002 OF 002 
 
 
billion) for various ministerial initiatives.  The hefty 
investment budget reflects continued government emphasis on 
reversing declining oil production rates, locating additional 
pockets of gas reserves, and promoting diversification of the 
economy. 
 
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Solid 2006 
---------- 
 
¶6. (U) Macki noted that 2006 represented a good year for 
public finances.  He stated that preliminary estimates peg 
2006 GDP growth at 16.8%.  Continued strong oil revenues, 
which offset a 5% decline in oil production over the year, 
and the growth of non-oil sector activities - in particular 
the LNG industry (60.7% growth) and the tourism industry 
(22.4% growth) - had resulted in a projected surplus of 2.4 
billion RO (USD 6.41 billion).  According to Macki, this 
surplus will enable the government to absorb various projects 
awarded by the Sultan during his 2006 "Meet the People" tour, 
which include road, airport, and port improvements, housing 
construction, medical equipment purchases, and education 
initiatives.  The remainder of the surplus will be used to 
bolster government reserve accounts and fund the pension 
system (reftel). 
 
------------------------------- 
GCC Monetary Union: Just Say No 
------------------------------- 
 
¶7. (U) During a public question and answer session, Macki was 
asked why Oman opposed joining the GCC monetary union at a 
time when the government was running high surpluses.  Macki 
responded that Oman's decision on the proposed common 
currency was "total," and that as "a developing country," the 
government couldn't cede its authority regarding borrowing 
and deficit ceilings to the GCC Secretariat.  Even when 
pressed with the option of joining the monetary union under 
relaxed criteria, Macki replied that Oman was unable to 
commit to it "at this point." 
 
¶8. (U) Macki also shunned the implementation of price 
controls to appease those complaining that the rising prices 
of goods are outpacing wage increases.  Noting that Oman's 
inflation rate of 3% was below the regional average of 8%, 
Macki responded "we are not a socialist country," and 
asserted that price controls would simply foster a black 
market.  On the question of the U.S.-Oman Free Trade 
Agreement's impact on customs revenue, Macki predicted that 
the agreement would have a minimal effect since duties as a 
whole last year only accounted for 80 million RO (USD 213.6 
million) in revenue. 
 
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Comment 
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¶9. (SBU) As reported reftel, the budget represents the 
continued concerted effort by the government to use the 
surpluses generated by high oil prices to diversify the 
economic base of the country through industrialization, 
tourism-based projects, and infrastructure improvements, 
while at the same time stashing excess funds away for future 
low oil-price contingencies, as is traditional, and to 
fulfill pension obligations.  We expect the government, 
through its conservative estimation of oil prices and 
production, to post another surplus for 2007, though not as 
great as was recorded in 2005 and 2006. 
 
¶10. (SBU) On the issue of Oman's non-participation in the GCC 
monetary union, Macki's statement has been the clearest so 
far from a government official on the reasons for the 
Sultanate's decision.  His definitive "no," regardless of the 
stringency of the criteria imposed, signals Oman's strong 
desire to remain as independent as possible in controlling 
its own monetary and budgetary policies. 
GRAPPO