VZCZCXRO5574
RR RUEHDE RUEHDIR
DE RUEHMS #0015/01 0061140
ZNR UUUUU ZZH
R 061140Z JAN 08
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 9121
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MUSCAT 000015 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, EEB/CBA, EEB/IFD/OMA 
COMMERCE FOR ITA HOFFMAN 
TREASURY FOR OIA VALVO 
 
E.O. 12958: N/A 
TAGS: ECON EINV PGOV PREL MU
SUBJECT: OMAN'S 2008 BUDGET: MORE OF EVERYTHING 
 
REF: 07 MUSCAT 1093 
 
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Summary 
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¶1. (SBU) Oman's 2008 budget, unveiled by the Minister of 
National Economy on the first of the year, once again calls 
for increased expenditures, in anticipation of higher 
revenues, to boost energy production and to diversify the 
Sultanate's economy.  The government projects a deficit for 
2008; however, given the conservative estimates employed in 
calculating the budget, another surplus is almost certain. 
The Minister characterized the budget as a balance between 
promoting economic development and exercising fiscal 
responsibility in the wake of rising inflationary pressures. 
The budget, while exhibiting a noticeable increase in 
expenditures for development projects, did not contain an 
increase in public sector salaries, an omission met with 
public criticism.  End Summary. 
 
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More Spending 
------------- 
 
¶2. (SBU) On January 1, Minister of National Economy Ahmed bin 
Abdul Nabi Macki presented the Sultanate's budget for 
calendar year 2008, as approved by the Sultan via Royal 
Decree 1/2008.  The budget projects 2008 revenues to be 5.4 
billion Omani rials (RO) (USD 14.0 billion), with 
expenditures predicted to equal 5.8 billion RO (USD 15.1 
billion).  While the budget leaves a projected deficit of 400 
million RO (USD 1.1 billion), which equates to 3% of the GDP 
and 7% of revenues, Oman will most likely record another 
surplus at year's end, based on its tradition of 
conservatively estimating energy prices.  The government 
premised this year's budget on oil selling for USD 45 per 
barrel, with domestic production estimated at 790,000 barrels 
per day.  Based on these figures, oil sale proceeds are 
expected to account for 3.6 billion RO (USD 9.35 billion), or 
67%, of anticipated government revenues, while gas sale 
income is projected to reach 620 million RO (USD 1.61 
billion), or 11% of anticipated government revenues. 
 
¶3. (U) Government expenditures for 2008 are expected to 
increase by 910 million RO (USD 2.36 billion), or 19% above 
2007 spending levels.  Operating expenses for the ministries 
are projected to account for 33% of the anticipated 
expenditures, with education and health care expenses 
accounting for almost 50% of ministerial operational budgets. 
 Spending on education is expected to rise 101 million RO 
(USD 262.4 million), or 17%, over 2007 figures to a total of 
710 million RO (USD 1.84 billion).  The amount allocated for 
health care is up 15% from the previous year, equaling 228 
million RO (USD 592 million).  Defense spending is estimated 
to reach 1.36 billion RO (USD 3.53 billion) in 2008, slightly 
more than the amount authorized in the 2007 budget.  Defense 
spending is projected to constitute roughly 25% of the 
overall expenditure budget, about the same as in 2007. 
 
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More Investment 
--------------- 
 
¶4. (U) The government intends to continue spending on oil and 
gas production capabilities in 2008, earmarking 670 million 
RO (USD 1.74 billion) for oil production investment and 450 
million RO (USD 1.17 billion) for gas production investment. 
These figures represent increases of 16% and 12.5%, 
respectively, over 2007 figures.  An additional 725 million 
RO (USD 1.88 billion) has been set aside for various 
ministerial investment projects. 
 
¶5. (U) The 2008 budget reflects a significant increase in 
spending on development projects as compared to what was 
envisioned at the beginning of the seventh five-year plan 
(2006-2010).  With what has been proposed in the 2008 budget, 
there will be an increase of 2.36 billion RO (USD 6.13 
billion) over the 3.02 billion (USD 7.84 billion) originally 
planned for development projects during the planning cycle. 
Benefiting from the augmentation of the development budget 
are road, airport, and port construction; gas production; 
housing; and health care 
 
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Surplus in 2007 
 
MUSCAT 00000015  002 OF 002 
 
 
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¶6. (U) Macki noted that the high price of oil contributed to 
another strong year for public finances in 2007, with 
preliminary estimates suggesting a GDP growth rate of 11.6% 
and a budget surplus of 1.72 billion RO (USD 4.47 billion). 
The Minister stated that the surplus would be used to 
strengthen the government's financial reserves.  Oil revenues 
again masked declining oil production rates for Oman, which 
fell 4.5% for the first 10 months of 2007 as compared to 
2006, reaching only 707,500 barrels per day. 
 
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Concerned about Inflation 
------------------------- 
 
¶7. (U) Macki commented to reporters that the government 
remained concerned about rising inflation, which was 
estimated by the Ministry at 5.3% from January-October 2007. 
For this reason, the Minister remarked that the government 
would slow down the tendering process on development 
contracts in efforts to check the rise of construction 
material prices, which he cited as one of the main drivers 
for inflation.  Macki further stated that price hikes in food 
products were the result of external problems, such as 
droughts and restrictive export policies in source countries 
and the declining value of the dollar.  The government would 
not step in to set price controls, added Macki, but would 
continue to subsidize the cost of electricity and water in 
2008 at a cost of 179 million RO (USD 464.9 million).  The 
Minister confirmed that the government would not drop the 
currency peg to the dollar; he did not propose a rise in 
salaries for government employees. 
 
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Where's the Generosity? 
----------------------- 
 
¶8. (U) The lack of salary increases in the budget drew 
criticism from the Arabic daily "Azzamn," which stated, "The 
2008 State budget totally disregarded the rising cost of 
living."  Traffic on the Arabic-language internet chat site 
"al-Sablah" on this subject was negative as well, as posters 
asked why there was no public sector wage increase in Oman 
when government employees elsewhere in the region, including 
Egypt, were getting raises.  Others complained that since 
local price increases were "obvious," the government should 
compensate its workers accordingly.  One poster questioned 
how the government could find the money to build an expensive 
opera house, but not fund wage increases.  (Note: 
Construction of a new performing arts center is being funded 
by the palace, but the distinction between government and 
royal monies is lost on many Omanis.  End Note.) 
 
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Comment 
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¶9. (SBU) With the unveiling of the 2008 budget, the 
government will continue to open its wallet to support the 
necessary infrastructure projects to diversify its economy 
away from energy production, especially in the industrial and 
tourism sectors.  Special emphasis will be given to port and 
airport development, as well as the purchase of new aircraft 
for recently nationalized carrier Oman Air.  Following a 
tradition of holding firm on salaries, however, it appears 
the government will not soon appease demands for public 
sector wage hikes.  In spite of the criticism, and contrary 
to widespread rumors that a salary increase was on the 
horizon, government workers will instead likely need to wait 
until November (i.e. the Sultan's annual speech before the 
Majlis) to see if their wages will be augmented beyond the 
15% granted in November 2006. 
 
¶10. (SBU) Post further expects the government, through its 
traditional conservative estimation of oil prices, to post 
another surplus for 2008.  Whether the government will be 
able to generate the kind of surpluses it has over the past 
two years will depend not only on the price of oil, but on 
the ability of its two main oil producers, Petroleum 
Development Oman and Occidental Petroleum, to meet the 
government's optimistic production targets. 
GRAPPO