Abstract
Though Oman' s financial sector is relatively insulated from global problems,
the oil and gas sector' s
reliance on commercial finance will undermine
some of the country' s major economic projects.
Economic activity will be
hit by the tail-wind of the global financial crisis.
Like other GCC
states, Oman is looking largely to spend its way out of recession, unveiling
an
expansionary budget for 2009 which will see cuts in public expenditure
only if oil prices drop
significantly below US$45 per barrel (bbl). The
government unveiled a US$16.6bn spending programme
for 2009, which
represents an 11% increase over 2008, and would lead to a projected deficit of
5% of
GDP, at about OMR810mn. Oman' s central bank has shoehorned
additional dollar liquidity into the
banking system, deploying monetary
tools - cutting interest rates and temporarily raising the permitted
loans-to-deposit ratio. However, this fiscal stimulus is not going to rescue
the Oman economy by itself;
and, with oil-sector activity likely to rise
by only 1.0%, we envisage a 0.5% contraction in real GDP this
year, though
growth should return to 2.5% in 2010 on the back of stronger
non-hydrocarbons
performance (where there has been some relatively good
news to report in recent months).
Fortuitously, the government has a
backlog of financial assets to enable it to ramp up expenditure on key
economic projects. The government' s gross financial assets plus the central
bank' s foreign exchange
reserves amounted to around 75% of GDP at
end-2008, according to Moody' s estimates. Overall debt
levels remain
comparatively small.
We predict a substantial decline in inflation this
year, after a bad 2008. Official figures show inflation
averaged 12.4%
year-on-year (y-o-y), slightly above BMI' s 11.8% forecast for last year.
Despite the
obviously inflationary side-effects of increased public
expenditure, we see the liquidity measures
undertaken by the monetary
authorities last year and the drastic slide in consumption levels ensuring
a
reduction in annual inflation to just 6.0% y-o-y in 2009, falling
further to 4.0% y-o-y in 2010. Much of
the increase in inflation last year
was related to the H1 hike in food prices, which saw the cost of cooking
oil increase by 60% and cereal rise by 42.3%. Rents rose by 15% last year due
to the supply bottlenecks,
but this should be eased this year as demand
falls back. Developers report that the price of land in
Muscat' s suburbs
has fallen by 65% on the previous year' s levels. The other problem was that
the surge
in prices took place against the backdrop of a weak greenback,
which exacerbated inflationary pressures.
This issue no longer pertains,
and declining inflation is one positive side effect of the global
financial
crisis for the Oman authorities.
In the Middle East and
North Africa, we profile 17 companies. These are AGF, AIG, Allianz, Aviva,
AXA, Cardif, ERGO, Eureko, Fortis, Generali, Groupama, HSBC Insurance, Liberty
Mutual,
MAPFRE, RSA, UNIQA and Zurich Financial Services.
Over the
course of 2008, actual/estimated total premiums in Oman rose by 8% to
OMR238mn.
Non-life premiums rose by 11% to OMR219mn while life premiums
dropped by -17% to OMR19mn.
Between now and the end of the forecast
period, we expect that annual non-life premiums will grow by
OMR137mn
while annual life premiums should grow by OMR41mn.
Growth in non-life
premiums should be driven by the general growth of nominal GDP plus a rise in
nonlife
penetration from the current level of 1.13% to 1.30%.
Growth
in Life premiums should be driven by the change in the overall population and
a rise in life
density from US$11.94 to US$40.00 per capita.
BMI' s
Insurance Business Environment Rating for Oman is 49.
| 
View Cart
