Outlook for 2011-12

• Oman's long-established political structures will remain stable under the rule of the sultan, Qaboos bin Said al-Said, who celebrated 40 years in power in July. The greatest risk is likely to be uncertainty over who will succeed him.
• The country remains vulnerable to the effects of any future confrontation over Iran's nuclear programme, given both the sultanate's proximity to Iran and the stationing of Western military bases on its territory.
• Economic policy over the forecast period will focus on diversifying the economy away from its reliance on the hydrocarbons sector and on meeting the employment needs of a young and fast-expanding population.
• Oman will not join the planned Gulf Co-operation Council (GCC) single currency. Instead, it will retain its currency peg to the US dollar.
• The Economist Intelligence Unit estimates that Oman's real GDP grew by 4.1% in 2010, driven by rising oil prices and production. Real GDP growth will accelerate further over the forecast period, to an average of 4.5%.
• We forecast that average consumer price inflation will increase to 4.5% in 2011 as food prices rise, but will fall to 4.1% in 2012 as prices stabilise.
• The current account is expected to record surpluses over the forecast period, driven by higher oil production and prices. We forecast an average surplus of 4% of GDP in 2011-12, up from an estimated 3% of GDP in 2010.

Monthly review

• The GCC has concluded its two-day annual summit, which was held in Abu Dhabi. One of the key items of discussion was the 2,100-km GCC rail network, which is expected to be completed by 2017.
• Preliminary results of the 2010 census conducted in mid-December show an increase of 15% in total population, compared with the last census in 2003. However, this is much lower than the most recent mid-2009 estimate.
• The national economy minister, Ahmed bin Abdulnabi Macki, has presented the details of the eighth five-year development plan (2011-15), revealing a fourfold increase in expenditure on new and ongoing projects.
• Details of the 2011 general budget were released alongside the eighth five-year development plan. Government revenue is estimated at OR7.3bn (US$19bn), with expenditure put at OR8.1bn.
• High oil prices enabled the sultanate to achieve many of the targets for the previous five-year plan (2006-10). The plan was also based on a very conservative oil price of US$30/barrel. Actual oil prices averaged US$73/b.

The long-established structures of political power are expected to remain stable over the forecast period. The sultan, Qaboos bin Said al-Said, celebrated 40 years in power on National Day on November 18th, which also coincided with his 70th birthday. He is believed to command wide popular support and has used Oman's oil wealth to develop infrastructure and to improve education and healthcare services, both of which are given priority in the 2011 budget. However, the sultan retains all the decision-making power, a fact which is captured in the Economist Intelligence Unit's 2010 democracy index. Oman slips three places in the index to 143rd out of 167 countries, owing to a fall in its score for political culture and its extremely poor score for the electoral process. The government is appointed by the sultan, who is also the prime minister and holds the defence, finance and foreign affairs portfolios. The last government reshuffle in late 2007 had little effect on policy, and any future reshuffle would be expected to have a similarly limited impact.

The biggest political risk in 2011-12 is likely to be uncertainty over who will succeed the long-serving sultan. The sultan has no children, and none of the three first cousins widely viewed as the leading candidates to succeed him has yet been trusted with substantial executive power. The most prominent among these is Asad bin Tariq al-Said, who is currently a special representative of the sultan.

The final decision on who will succeed Sultan Qaboos will not be made until after his death, when family members will have three days to choose a successor. Should they prove unable to agree, a letter left by the sultan naming his choice of successor will be opened, and that person will become the new leader. The system is untested and unusual-Arab monarchies tend to have named crown princes. However, with the Defence Council (a powerful extra-parliamentary body tasked with co-ordinating the actions of the country's various security forces) responsible for ensuring that the sultan's wishes are obeyed, and given that the ruling family has a clear incentive to manage the transition with the minimum of disruption, it is likely that the immediate transfer of power will be effected without dispute. The main risks are likely to arise in the longer term, if the sultan's successor proves unable to contain the latent divisions within Omani society.

The Council of Oman (parliament) comprises the Majlis al-Dawla (State Council) and the Majlis al-Shura (Consultative Council). Members of the Majlis al-Dawla are appointed by the sultan for a four-year term. Members of the 83-seat Majlis al-Shura are elected for a four-year term by universal suffrage, but the council has no legislative powers. The last election was held in October 2007. Despite concerns that the chamber's lack of political power would deter voters, the turnout was around 60% of the electorate. Women are encouraged to participate in the elections. Even though a number of women were nominated as candidates by their districts in the last election, all the seats were won by men. The sultan has encouraged the participation of women in Omani society, and Oman celebrated its first annual Omani Women's Day in October.

The Economist Intelligence Unit does not expect further progress on political reform in the forecast period. The Majlis al-Shura is unlikely to acquire legislative powers in the near term. Although it can make recommendations on domestic legislation, discussion of foreign policy or defence matters is not permitted. The next election is scheduled for October 2011.

Oman's ties with its most important international allies-the US and the UK-will remain strong over the forecast period. Oman has a long history of association with British military and defence institutions. However, relationships with Asian countries, especially India and China, will continue to strengthen. Oman also has good relations with Iran and will thus continue to monitor the ongoing dispute over Iran's nuclear programme with some discomfort. In the 31st annual summit of the Gulf Co-operation Council (GCC), Oman praised recent efforts by the P5+1 group (the permanent members of the UN security council plus Germany) to solve the Iranian nuclear crisis through peaceful means. In August 2009 the sultan visited Iran for the first time since the 1979 Islamic revolution, signalling Oman's willingness to engage directly with the country during a period of heightened international tension. Oman is therefore likely to maintain cordial relations with its Western allies as well as with Iran. With the increasing isolation of Iran from the international community, this will allow Oman to act as a bridge between the West and Iran, increasing the importance of its role as a mediator.

Oman advocates a strong diplomatic approach to the Middle East's other political issues, including the Israeli-Palestinian conflict. It has publicly supported the unity of its neighbour, Yemen, following rising instability, and will continue to watch developments there with concern. Given the political, economic and military importance of Oman's historical links to the West, we expect no change in the sultanate's pro-Western foreign policy in 2011-12.

The government will continue to pursue reforms that lead to diversification away from oil and gas and that promote non-oil exports. The new eighth five-year development plan (2011-15) allocates more than OR1.5bn (US$3.9bn) to the development of non-oil exports including the construction of ports, airports and tourism development projects. However, the government will also invest in increasing Oman's crude oil production. The use of enhanced oil recovery (EOR) techniques produced results in 2010, with oil production in the first ten months increasing by 6.6% year on year to an average of 860,800 barrels/day (b/d). Higher oil prices and increased production are expected to contribute just under 70% of total annual government revenue in 2011-15. However, a shortage of gas may cause some projects to be delayed. Plans to expand gas production are under way with a total of OR412m (US$1bn) set aside in the eighth five-year development plan. Tourism will also play a key role in diversifying revenue. Endeavours to increase the role of the private sector in large-scale projects will continue. Oman is financially well positioned to withstand a fall in oil prices and has based its 2011 budget on a price of US$58/barrel, well below our forecast of US$82/b (for Brent Blend) in 2011.

The government will continue its "Omanisation" policy (the replacement of expatriate workers with local staff). It will focus on educating and training Omanis to develop local professional and technical expertise. The government will also press the private sector to meet targets to increase the number of jobs for Omani citizens, while cracking down on illegal workers in the country. Despite changes to the Labour Law, however, supply-side problems are likely to continue to slow progress on Omanisation.

Details of the 2011 budget were released on January 1st with total public revenue estimated at OR7.3bn or 14% higher than the 2010 budget. The budget also assumes an increase of 13% in expenditure to OR8.1bn, thereby implying a budget deficit of OR850m. However, high oil prices and conservative oil price estimates for the preparation of budgets in the past have enabled the sultanate to turn in a series of budget surpluses. The national economy minister, Ahmed bin Abdulnabi Macki, also said he expected most of the OR800m budgeted deficit for 2010 to be covered. We estimate that government revenue increased by 14% year on year, to OR7.7bn, in 2010 as a result of increases in oil production and oil prices. We forecast that revenue will increase by 3.1% in 2011 to OR7.9bn. This is higher than the budgeted revenue for 2011, owing to robust growth in non-oil exports as well as an increase in oil prices in 2011. We estimate that government spending in 2010 reached OR7.4bn, which is slightly above budget (as the government continued with its economic diversification projects), but the overspend is smaller than in 2009. We forecast that spending will increase by 6.5% in 2011. We expect the budget surplus to narrow to 0.4% of GDP in 2011 owing to an expansionary fiscal policy and modest growth in crude production. Increased revenue from non-oil exports will boost government income in 2012, leading to a widening of the surplus to 0.9% of GDP.

Monetary policy will be largely unchanged in 2011-12, and there will be little pressure on the Omani riyal's peg to the US dollar. Confidence in the peg is underpinned by a decision, announced by the executive president of the Central Bank of Oman, Hamood Sangour al-Zadjal, not to join the proposed GCC single currency. This represents a shift from Oman's original position, which was to delay joining the currency until after 2010. The authorities have resisted pressure to revalue the riyal, insisting that the peg will remain in place for the foreseeable future. Omani lending rates are forecast to average around 7.4% a year in 2011-12; the Central Bank has consistently maintained an annual average of 7.3% since 2005.

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The Central Bank has yet to release data for real GDP in 2009. We estimate that real GDP will have grown by 4.1% in 2010, owing to an increase in oil production. According to the national economy ministry, oil production averaged 860,800 b/d in the first ten months of 2010, owing to EOR techniques. We forecast that economic growth will average 4.5% in 2011-12.

The Omani economy will remain vulnerable to any downturn in domestic oil production and to fluctuations in oil and gas export prices. GDP growth will continue to rely on the hydrocarbons sector, but as oil extraction becomes increasingly difficult and expensive, the diversification programme will become more important. Oil and gas accounted for just over 40% of GDP in 2009 (compared with just over 50% in 2008). Liquefied natural gas (LNG) production will rise modestly over the forecast period, but insufficient gas reserves mean that even with plans for a fourth LNG train, exports will remain subdued. The expansion of ports, the diversification into manufacturing such as aluminium and the development of tourism infrastructure will boost non-oil exports. However, inconsistent data regarding population, especially growth in the expatriate population, as revealed by the preliminary results of the 2010 census, make economic planning more difficult. A major downside risk to our growth assumptions is the shortage of gas supplies; gas is used in EOR, desalination and electricity generation for heavy industries such as aluminium and fertilisers.

We expect consumer price inflation to average 4.3% over the forecast period, having averaged 4% in 2010. Oman imports the majority of its food products. An expansionary fiscal policy and a rise in the prices of basic food items, such as wheat, and industrial raw materials will contribute to an increase in prices. Inflation is forecast to rise in 2011 to 4.5% but to fall to 4.1% in 2012 as prices stabilise. Inflation in the forecast period is expected to be much lower than in 2007-08, when it averaged 9.2%. However, it remains high by Omani standards. Consumer prices are constrained by the government's extensive subsidy system, which holds in check the prices of a range of core goods and services.

Oman's fixed exchange rate of OR0.385:US$1 is unlikely to come under pressure in 2011-12. The Central Bank remains firmly committed to the peg, which it has maintained since 1986. The outlook for Oman's external accounts and foreign asset levels is still sufficiently robust to enable the Central Bank to defend the peg. Oman's decision not to join the planned GCC currency union also means that the peg is less likely to be adjusted in response to any revaluations of the currencies of the other Gulf countries.

Having widened substantially in 2010 after narrowing in 2009, the trade surplus is expected to increase further in 2011 and 2012, buoyed by higher export revenue. Exports are forecast to grow by an average of 7.2% over the forecast period, boosted by oil prices and the continued development of Oman's sea ports, which will boost re-export trade. Imports will also grow strongly in 2011-12, owing to an increase in demand for consumption goods. The trade surplus is forecast to widen to US$17.6bn in 2011 and US$18.1bn in 2012.

The services deficit is forecast to widen in 2011-12, in spite of plans by the government to develop infrastructure to attract tourists. Any increase in tourism receipts will be offset by an increase in payments to cover the cost of EOR projects. We forecast that the non-merchandise deficit will widen to an average of US$15.3bn in 2011-12. The current transfers deficit will increase marginally in 2011-12, compared with 2010. The income deficit is likely to widen in 2011-12, in part because of a rise in interest payments on Oman's external debt. We estimate that the current account will have moved from a deficit in 2009 to a surplus (3% of GDP) in 2010. The current-account surplus is forecast to widen in 2011-12, to an average of 4% of GDP, in line with the widening trade surplus.

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The Gulf Co-operation Council (GCC) held their 31st annual summit in Abu Dhabi in early December. Sultan Qaboos bin Said al-Said was represented by Sayyid Fahd bin Mahmoud al-Said, a senior member of the royal family and deputy prime minister. It was no great surprise that the sultan did not attend in person as this year's gathering coincided with the end of a busy month of celebrations for Oman's 40th national day, and he has sent representatives to previous summits. High on the agenda was the planned 2,100-km GCC rail network. A feasibility report was submitted to policymakers for approval; the network could be completed by 2017. The summit approved a resolution allowing GCC companies to open branches in any of the six member states under equal terms with local firms. This will improve the joint investment climate, according to the GCC's assistant secretary-general for economic affairs, Mohammed bin Obaid al-Mazroui.

A closing statement was issued at the end of the summit. With regard to the security situation in Yemen, it said that the council hoped that a meeting of nations friendly to Yemen, to be hosted by Saudi Arabia in the first quarter of 2011, would lead to further support and improved security for the country. The statement also welcomed international efforts, especially by the P5+1 group (the permanent members of the UN security council plus Germany) to solve the Iranian nuclear crisis through peaceful means, but expressed regret over the continuing Iranian occupation of the islands of Greater and Lesser Tunb, and Abu Musa, which are claimed by the UAE. As the UAE hosted the summit, the dispute over the islands clearly made its way onto the agenda.

Oman undertook a general census in mid-December, the preliminary results of which were released less than a week later. The national economy minister and general supervisor of the census, Ahmed bin Abdulnabi Macki, presented the preliminary results. The total population was found to be just under 2.7m, an increase of 15%, or 350,000 people, since the last census conducted in 2003. However it is 15% lower than the most recent estimated figure (for mid-2009), published by the Ministry of National Economy just prior to the census, of nearly 3.2m. Most of the difference can be accounted for by the size of the expatriate population, which the census results showed to be nearly 750,000, compared with the ministry's most recent estimate of 1.2m in mid-2009, a discrepancy of 400,000. The census figures indicate that the expatriate population has risen by just over one-third since 2003.

The discrepancy raises inevitable questions about the accuracy of the census and the estimates of the expatriate population. Whereas the Omani population has nothing to fear from the process, many expatriate labourers, mostly from India, Pakistan and Bangladesh, would have regarded the census with suspicion. This would have been particularly so coming at the end of 2010, a year in which the government imposed a major crackdown on those in the country illegally, or those working for several employers, in breach of their work permits. In an acknowledgment of the problem, Mr Macki confirmed to reporters that census field staff had indeed faced difficulties, particularly with regard to expatriates. Many expatriates evaded the enumerators as they were "runaways" from their sponsors, while others were temporarily out of the country as the census coincided with school holidays and was held just before Christmas. At a press conference in early January to unveil the eighth five–year plan, Mr Macki was asked about the conflicting figures and replied that according to the Royal Oman Police, 250,000 expatriates were out of the country at the time of the census, and data from the Ministry of Manpower suggests that up to 80,000 expatriates have absconded.

The figures are broken down to show the size of the Omani and expatriate populations, respectively. In Oman the expatriate workforce is present in the country entirely at the discretion of the employer and the government, and individuals can be sent home at any time, with no notice. Expatriates who have been in relatively senior positions in government service for more than 25 years are eligible to apply for Omani citizenship, but it is only granted to a very limited number.

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This was the third census to be carried out in Oman; the first took place in 1993. It was the first time that an online self-reporting system had been used as one of the methods for collecting information. Technical difficulties resulted in the census being delayed from April to December. Full results of the census are expected to be published in the third week of January.

Oman's rank slips three places to 143rd out of 167 countries in the Economist Intelligence Unit's 2010 democracy index, putting it among the 55 "authoritarian" countries-beside the rest of the Gulf Co-operation Council members.

The decline in rankings is the result of a fall in its score for political culture although Oman scores reasonably well in the functioning of government and civil liberties categories. Oman's score in the civil liberties category is the second-highest in the GCC, after Qatar. However, Oman scores zero in the category of electoral process, as Omani nationals and expatriates have almost no say in the running of the sultanate, despite Oman having an elected Majlis al-Shura (Consultative Council).

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The sultan will retain control over the political system

Having been in power since 1970 after overthrowing his father, the sultan, Qaboos bin Said al-Said, retains overall political authority and continues to command wide popular support. The government is appointed by the sultan, who is also the prime minister, defence minister, finance minister and foreign affairs minister. A number of government reshuffles since 2004 have had little effect on political and economic policy, given that real political power is exercised by the sultan. Any future reshuffle would therefore be expected to have a similarly limited impact, so long as the sultan remains in control, shored up by the loyalty of the security services and the strength of Oman's traditional social structures.

The elected Majlis al-Shura is politically toothless

Although the Majlis al-Shura is elected every fours years by universal suffrage, it has no legislative powers and is not expected to gain any over the near term. The next election to the Majlis will be held in October 2011, and despite concerns that the chamber's lack of political power would deter voters, an impressive 60% or so of the electorate voted in the last election in October 2007. Although it can make recommendations on legislation, it is not permitted to discuss foreign policy or defence matters. We do not expect any further progress in political reform in the October 2011 elections.

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Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded from www.eiu.com/DemocracyIndex2010.

Note on methodology

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy that reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. The five categories are inter-related and form a coherent conceptual whole. Each category has a rating on a 0 to 10 scale, and the overall index of democracy is the simple average of the five category indices.

The category indices are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regimes:

• full democracies-scores of 8 to 10;
• flawed democracies-score of 6 to 7.9;
• hybrid regimes-scores of 4 to 5.9;
• authoritarian regimes-scores below 4.

Oman's eighth five-year development plan (2011-15) was ratified by royal decree on January 1st and details of the plan were presented the same day by national economy minister, Mr Macki. The most significant aspect of the plan is a fourfold increase in planned expenditure on new and ongoing projects, compared with the seventh five-year plan. Some OR12bn (US$31.2bn) has been allocated for new projects, compared to the OR3bn planned spend for 2006-10. Of this, OR6.4bn has been allocated to projects ongoing from the seventh five-year plan, and OR5.6bn earmarked for new projects. Total investment is expected to be OR30bn, over 110% higher than the figure in the previous development plan. The considerable increase in planned investment has been made possible by the rise in global oil prices since the publication of the last plan. The average price for Oman's oil over the period of the seventh plan (2006-10) is estimated to have been about US$73/barrel. By contrast the average price for 2001-05 was just US$32/b.

The latest development plan is based on an assumed average oil price of US$59/b and an average oil production rate of nearly 900,000 barrels/day (b/d). Oil production rates have been recovering steadily since the decade low in mid-2007: recently published figures show that average production was just over 860,000 b/d for the first ten months of 2010. Higher oil prices and increased production are expected to contribute to average annual government revenue of OR7.5bn. Average annual public expenditure is planned at just over OR8.5bn which will result in an annual average deficit of just over OR1bn, representing 14% of total revenue.

Mr Macki said that the plan aims to achieve an annual growth rate of 3% at constant prices, with low inflation rates at an average of 4%. The ministry forecasts that GDP will grow at an annual average rate of 6% at current prices, and 5% at constant prices, however. There were no big surprises in the plan, which follows the aims of Oman's long-term development strategy, Vision 2020. Mr Macki outlined the objectives of the plan and itemised some of the projects that will be implemented over the next five years. Investment expenditure for the oil and gas sector continues to be a high priority with OR3.2bn allocated to oil production and OR3.4bn to gas production. The government invested heavily in increasing production over the period of the seventh plan (2006-11) and this policy has been paying off.

The drive for economic diversification is to continue by developing tourism, agriculture, industry and fisheries. The expansion of Muscat and Salalah airports (OR470m; US$1.2bn) and the construction of a network of new regional airports (OR184m) are to be completed. Docks for liquids and bulk materials are to be completed at Duqm (OR216m) and additional quays built at Salalah port (OR184m). A network of ports and facilities for fast ferries is to be constructed along the coast at Salalah, Hasik, Shuaymiya, Al Halaniyat Islands, Shna, and Masirah (OR63m), and a sea port, floating dock and road network are also to be built on the Al Halaniyat Islands (OR39m). Fishing ports are planned for Barka, Al Masnaah, Muhout, Sadah, and Shuaymiya (OR26m) and there is to be an integrated plan for the management of date palm pests (OR8.4m). OR570m has also been allocated over the plan period for financing tourism development projects, presumably through Omran, the state-owned tourism development company, and an Oman cultural complex is to be built (OR32m). According to Mr Macki, non-oil activities are expected to grow annually at 10% at current prices and 6% at constant prices.

The development of human resources continues to be a significant theme, with a 50% increase in government spending on education, and an increase of nearly 90% on health, compared with the previous plan. Over 100 new schools are to be constructed (OR63m) and a thousand grants are to be made for post-graduate studies abroad (OR100m). Major new hospitals are to built in the capital, Muscat (OR140m), and Salalah (OR48m), in addition to new hospitals at five regional towns (OR55m).

According to Mr Macki, the plan aims to increase the role of the private sector in the national economy by developing the small business sector; developing the financial sector to provide profitable investment opportunities; and developing infrastructure. In addition to the sea and airport projects mentioned above, there are several large road projects planned, including construction of the Al Batinah express road (OR250m)-presumably an extension of the Muscat expressway-and the third phase of the Al Batinah coastal road (OR200m) together with replacement houses for those displaced by the road's construction (a further OR200m). Several major routes are to be widened to dual carriageway, including Nizwa-Thumrayt (OR250m), Bidbid-Sur (OR240m) and Ibri-Jabrin (OR73m). The government is to continue investing in water supply and wastewater projects, as well as groundwater recharge dams and flood-prevention dams. A water supply network is to be built from Wadi Dhayqah (where a dam is nearing completion) to Qurayat and Muscat (OR48m), and an emergency reservoir constructed in Muscat (OR40m), presumably prompted by the interruption to water supply caused by flood damage following Cyclone Gonu in 2007. Wastewater networks are to be built in Barka, Sohar and other towns (OR65m), and OR87m has been allocated to fund wastewater company projects. A major infrastructure project, conspicuously absent from those mentioned in connection with the eighth plan, despite receiving much publicity, is the proposed railway from the border with the UAE to Muscat, and possibly to Duqm and Salalah.

The pace of implementation of Oman's digital strategy is to increase with the start of digital television broadcasting (OR20m) and the creation of a national information-technology back-up system (OR19m). An objective of the five-year plan is to widen job opportunities for Omanis, and between 40,000 and 55,000 jobs are expected to be created each year on average, although how many of these will be filled by nationals remains to be seen, as many will be in construction, which is still largely manned by cheaper expatriate labour.

Details of the state general budget for 2011 were announced alongside the eighth five-year development plan by Mr Macki, at a press conference on January 1st. Total public revenue for 2011 is estimated at OR7.3bn (US$19bn), 14% higher than the 2010 budget figure. Just under 70% of the total is expected to come from oil revenue, based on an assumed average price of US$58/b, the highest price ever assumed in the state budget. Gas revenue is expected to contribute a further 13%, and the remaining amount (nearly 20%) will come from current and capital revenue. Public expenditure for 2011 is estimated at OR8.1bn, 13% higher than the figure in the 2010 budget. Current expenditure, at nearly OR2.8bn, is expected to account for 34% of total expenditure. This represents a 10% increase in current expenditure compared with the 2010 budget. This includes allocations to cover increases in civil service pay resulting from the new civil service job classification system. Education accounts for 34% of current expenditure, and health 12%.

The deficit is expected to be about OR850m which, as Mr Macki pointed out, is 4% of estimated GDP for 2011 and therefore within "economically safe and acceptable limits". Although the authorities have budgeted modest deficits for many years, high oil prices since the mid-2000s, together with a conservative setting of the assumed oil price, has resulted in surpluses being posted annually between 2002 and 2008.

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High oil prices compared with a conservative assumed price in the seventh five-year plan (2006-10) allowed Oman not only to weather the global economic downturn, but also to turn in a series of budget surpluses and increase investment spending fourfold compared with the planned figure. The unveiling of the eighth five-year development plan and 2011 budget was accompanied by a brief assessment of the previous plan and the outturn for the 2010 budget. Oil prices, which averaged US$73/b up to the end of October 2010, far outstripped the assumed price for 2006-10 of just US$30/b. This more than compensated for the overly optimistic forecast for average daily oil production of 827,000 b/d. In reality, average production from 2006 to the end of October 2010 (the most recent data available) was 776,000 b/d, 6% short of the assumed figure. Not surprisingly, this was not mentioned by Mr Macki. Planned deficits were realised as surpluses, which were used to strengthen the government financial reserve and reduce public debt. Investment was planned at OR3bn (US$8bn), but this was increased to an unprecedented level of OR12bn.

Mr Macki said that average annual growth rates in 2006-10 were estimated to have reached 13% at current prices and 6.3% at constant prices. Non-oil revenue increased at an estimated annual average rate of nearly 15% at current prices and over 8% at constant prices, which will please the authorities in their continuing bid to diversify the economy away from oil. Less satisfactory was the growth of inflation during the plan period, a factor which the authorities had little cause to worry about for many years. It peaked at 12.5% in 2008, owing to external factors, but the economy ministry estimates that it had fallen to 3.5% by 2010. The Economist Intelligence Unit estimates that inflation averaged 4% in 2010 owing to heavy government spending and rising food prices.

Another key objective of the government is the creation of jobs for Omanis: 177,000 new "work opportunities" were provided to the national workforce over the five-year period according to Mr Macki, who described the performance of the "Omanisation" programme as "outstanding". However, although it is true that the number of Omanis working in the private sector rose by nearly 80%, from just under 100,000 at the start of 2006 to 177,000 at the end of October 2010 (the most recently available data), the percentage that Omanis represent in the private-sector workforce fell over the same period. By contrast, in the public sector there was a small rise in the proportion of Omanis in the workforce, from 83% to 86%, reflecting an increase of 22,000 more nationals employed by the government.

On a more recent note, Mr Macki reviewed the expected fiscal results of 2010. The actual oil price realised was US$76/b, over 50% higher than the US$50/b price assumed for the year's budget. Despite a number of additional investments being approved during the year, Mr Macki said that he still expected a deficit, albeit much smaller than the OR800m budgeted. Part of the additional revenue has been used for early repayment of loans from the Arab Fund for Economic and Social Development used for the expansion of Salalah port and the Muscat expressway and the Abu Dhabi Fund for Development loans used for the Qurayat-Sur and Qurayat-Al Amerat roads.

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Please see graphic below

Please see graphic below

Please see graphic below

Land area

309,500 sq km

Population

2.87m (2008 Ministry of National Economy mid-year estimate), including 900,000 expatriates

Main regions

Population (2008)

Muscat (capital): 834,760 Dhofar: 273,052

Al Batinah: 760,454 Al Dhahirah: 258,567

Al Sharqiyah: 367,966 Musandam: 35,473

Al Dakhiliyah: 308,730 Al Wusta: 28,426

Climate

Coastal areas, especially Batinah and Muscat: very hot and humid in summer; winters mild. Interior desert: summers hot and dry; winters cool. Dhofar receives monsoon rains in June-September

Weather in Muscat (altitude 5 metres)

Hottest month: June, 31-38°C (average daily minimum and maximum). Coldest month: January, 20-25°C. Driest months: July and August, 1 mm average rainfall. Wettest month: January, average rainfall 28 mm, but considerably higher on Hajar mountains in the interior

Languages

Arabic; English, Urdu, Baluchi and Swahili are also widely used

Measures

Metric system

Currency

Omani riyal (OR) = 1,000 baisa. The currency is pegged to the US dollar at OR0.3845:US$1

Time

4 hours ahead of GMT

Public holidays

The Islamic holidays-Eid al-Fitr (end of Ramadan, August 30th 2011), Eid al-Adha (Feast of the Sacrifice, November 6th 2011), Islamic New Year (November 26th 2011) and Mawlid al-Nabi (the birthday of the Prophet, February 15th 2011)-are public holidays, the dates of which vary according to the lunar calendar and are therefore approximates. New Year's Day (January 1st), National Day and birthday of Sultan Qaboos (November 18th), and New Year's Eve (December 31st) are also public holidays

Official name

Sultanate of Oman

Form of state

Monarchy

Legislature

There is no national legislature. The Council of Oman debates policy but does not legislate. It comprises the 84-member Majlis al-Shura (Consultative Council), which was elected by universal suffrage in 2007-the next election is in October 2011-and the Majlis al-Dawla (State Council), whose members were appointed in November 2007

Head of state

Qaboos bin Said al-Said assumed power in July 1970

Executive

The sultan rules by decree, assisted by the Council of Ministers (cabinet). The most recent cabinet reshuffle was in September 2007

Main political parties

Political parties are not permitted

Adviser of the sultan

Shihab bin Tariq al-Said

Personal representative of the sultan

Assad bin Tariq al-Said

The government

Prime minister, minister of defence, finance & foreign affairs: Qaboos bin Said al-Said

Deputy prime minister for cabinet affairs: Sayyid Fahd bin Mahmoud al-Said

Key ministers

Agriculture: Salim bin Hilal al-Khalili

Awqaf & religious affairs: Abdullah bin Mohammed al-Salimi

Commerce & industry: Maqbool bin Ali bin Sultan

Defence affairs: Badr bin Saud bin Hareb al-Busaidi

Diwan of the Royal Court: Ali bin Hamoud al-Busaidi

Education: Yahya bin Saud bin Mansour al-Salaimi

Environment & climate affairs: Hamoud bin Faisal al-Busaidi

Fisheries: Mohammed bin Ali al-Qatabi

Foreign affairs: Youssef bin Alawi bin Abdullah

Health: Ahmed bin Mohammed al-Sa'eedi

Heritage & culture: Haithem bin Tariq al-Said

Higher education: Rawya bint Saud al-Busaidi

Information: Hamed bin Mohammed al-Rashdi

Interior: Saud bin Ibrahim bin Saud al-Busaidi

Justice: Mohammed bin Abdullah al-Hinai

Legal affairs: Mohammed bin Ali bin Nasser al-Alawi

Manpower: Abdullah bin Nasir al-Bakri

National economy: Ahmed bin Abdulnabi Macki

Oil & gas: Mohammed bin Hamad al-Rumhi

Regional municipalities & water resources: Abdullah bin Salim bin A'amir al-Rowas

Social affairs development: Sharifa bint Khalfan al-Yahyaeea

Tourism: Rajha bint Abdulameer

Transport & communications: Khamis bin Mubarak al-Alawi

Central Bank executive president

Hamood Sangour al-Zadjal