[Oman-L] Oman's economic growth in the first half of 2007

[Joachim Duester]

Oman's economic growth remains buoyant   
Source: Oman Daily Observer, 2 December 2007

Economic growth remained buoyant in the Sultanate with
both non-oil and overall GDP registering growth rates
of 16.9 per cent and 8.3 per cent respectively, during
the first half of 2007, compared to the corresponding
period in the previous year. Inflation as measured by
the annual change in the CPI for the Sultanate
averaged 5.1 per cent during the period
January-September 2007. Fiscal and balance of payments
(BoP) positions continued to be in surplus, the
Central Bank of Oman (CBO) said in a statement.

Favourable macroeconomic environment helped to
strengthen the business and financial performance of
banks in Oman during 2007. Operations during the year
to date have been marked by significant expansion in
all important banking aggregates, notably credit,
foreign assets, deposits, capital and reserves as well
as operating profits. The combined balance sheet of
commercial banks registered growth in total assets of
32.7 per cent to reach RO 9156.8 million at the end of
October 2007.

Credit, accounting for 64 per cent of total assets
increased by 28.2 per cent to reach RO 5814.5 million.
Responding to the short term interest rate
differential in favour of the US dollar as well as
easy domestic liquidity conditions, commercial banks
increased their foreign assets portfolio from RO
1487.4 million in October 2006 to RO 1878.5 million in
October 2007 (26.3 per cent). Total deposits held with
commercial banks increased by 33 per cent to reach RO
6061.4 million at the end of October 2007. The
increase in private sector deposits, which constituted
over 80 per cent of total deposits was broad based
with demand, savings and time deposits increasing by
45.1 per cent, 33.5 per cent and 17.6 per cent
respectively.

The core capital and reserves at the end of October
2007 amounted to RO 909.9 million. Provisional figures
of net profits of commercial banks in Oman (after
provisions and taxes) stood at RO 161.3 million during
the period January-October 2007, a growth of 26.3 per
cent over the corresponding period of the previous
year. On the monetary front, the broad measure of
money supply M2, registered a growth of 30.2 per cent
to reach RO 5608.9 million as at the end of October
2007.

Money supply, as represented by narrow money (MI)
comprising currency held by the public and RO demand
deposits registered a growth of 39.5 per cent during
the period. While currency with the public rose by RO
109.3 million (25.4 per cent), RO demand deposits
increased by RO 379.4 million (47.1 per cent). In
terms of sources of money supply increase, it is seen
that the major thrust was on account of the increase
in net foreign assets of the banking system (43.9 per
cent) followed by the rise in domestic assets by 8.7
per cent.

As regards the behavior of the interest rate
structure, while average RO deposit rates increased
from 1.868 per cent in October 2006 to 2.030 per cent
in October 2007, RO lending rates marginally declined
from 7.427 per cent to 7.316 per cent during the
corresponding period, thereby contributing to the
decline in interest rate spread from 5.56 per cent to
5.29 per cent.

As regards CBO's policy interest rates, for absorption
of surplus liquidity, the weighted average CD rate was
lower at 2.762 per cent in October 2007 in relation to
4.127 per cent in October 2006. For injection of
liquidity, the average rate for repos with CBO
marginally declined to 6.022 per cent from 6.323 per
cent during the corresponding period. The overnight
domestic inter-bank rate in October 2007 stood lower
at 2.250 per cent in relation to 3.290 per cent in
October 2006.