Tuesday 30 / April / 2024
The global economy has entered a new phase that is different in its essence and challenges from all the other phases witnessed by global markets before.
This is not solely the result of the drop in oil prices as some experts and economic analysts claim; it is rather due to a structural defect in the global economy that was largely apparent during the 2008 financial crisis.
The fall in oil prices has come about as a natural consequence of the crisis and its effect on both productive and consumer economies.
The most effective approach to exit this phase safely is not through discussing ways to raise oil prices but through assessing the reasons behind the current scenario.
Meeting the challenges emerging from globally falling oil prices is a good starting point. These challenges include economic diversity, specialised sectoral focus in each country, and innovating a new mechanism to fund sovereign projects by relying on national funding initiatives.
Oman has already implemented a few measures in this regard. First of all, it has kept a low public debt ceiling that amounts to only 10 per cent of its GDP. This enables the country to borrow from global financial markets to fund the deficit when necessary without exceeding reasonable public debt levels. In addition, government bonds enjoy an A1 credit rating according to Moody’s data, which is a highly regarded and positive rating.
It is worth noting that at a time when debts have become one of the critical challenges troubling large global economies, keeping low public debt levels is a positive indicator and must be maintained.
However, the government still needs to spend on sovereign and infrastructure projects in order to create an environment that encourages investments.
Such projects include completing the railway and transport network that will transform the Sultanate to a logistical hub for export and re-export and will facilitate further communication internally among all development projects. The country also needs to keep spending on developing non-oil sectors to achieve the 2020 Vision, which aims to reduce the oil sector’s contribution to GDP from 46 per cent to a mere 9 per cent.
These projects need a healthy amount of capital and we must examine financing options and identify the most suitable ones.
A few options worth considering include securing multiple revenues for sovereign projects, selling foreign assets, selling some public sector components to private companies, resorting to public debt, or creating new tax systems.
However, all these options exclude one important choice that may become a main financing method in the long term, especially amidst the complexities of economic globalisation and the relation of debts to certain political consequences that affect the country’s sovereignty.
This golden choice is the contribution of individuals in boosting the GDP through saving with certain financial instruments, such as public securities or sukuk.
Following the global financial crisis, many countries have relied on the savings of their citizens and national companies to fund their sovereign projects and stimulate their national economies. Some countries have even issued what is called ‘Development Sukuk’ or ‘Development Bonds’ which basically represent equal shares in current projects that are bought by citizens.
Therefore, individuals can now contribute to financing projects in return to receiving revenues for their shares as determined by the number of sukuk or bonds that they own.
This choice may not be enough to bridge the gap between financial deficit and the country’s minimum capital spending. However, it is enough to reduce the country’s reliance on other options that could very well lead to a public loss in the long run. Leveraging this choice does not necessarily mean that a country should not raise taxes; however, we should be careful and attempt to not harm the investment environment or add further financial burdens to citizens.
Oman’s great potential for non-oil sector developments is the greatest motivating factor towards the search for national funding methods. These developments will contribute largely to reducing our reliance on oil.
For example, our country enjoys a promising agricultural sector in a region that depends on the import of food and agricultural products from foreign countries.
This makes Oman a great candidate for meeting a large portion of the regional countries’ demands in the long term. The total value of Oman’s agricultural and fish production amounted to OMR525 million in 2014, growing 5.8 per cent since 2013.
By utilising advanced farming technologies and further investing in the sector, we can double the production to exceed OMR1 billion ($2.59 billion) within the next ten years to modernise the entire sector.
Tourism is another sector that can witness great successes amidst the current geopolitical events in the region. The tourism sector is profoundly important due to its role in promoting a country’s entire cultural, economic and lifestyle components. When compared to other regional countries, Oman is truly unique in its diverse climate, its heritage, culture, markets and competitive prices.
Such factors make the Sultanate a perfect destination for tourists and business travelers. Studies show that the tourism sector’s contribution has increased to 6 per cent of the GDP, compared to only 2.5 per cent in 2012. In light of government’s five-year plan, we expect the sector’s contribution to further increase to 9.9 per cent by 2020.
As we discuss these sectors, we cannot forget other factors such as turning our economy into a productive one, focusing on the transport sector, and creating national financial resources to which citizens and residents can contribute in order to allow us to reduce our reliance on foreign funding.
By analysing promising sectors and their financing options, we can be confident that we will achieve even greater results than the ones determined by the 2020 Vision and Oman’s national strategy for a comprehensive and sustainable development. It is important that we innovate new mechanisms to boost our country’s economy, using national resources to their greatest potential.
- The author is the Chairman of National Bank of Oman and an International Advisor to the Brookings Instituition. All the views and opinions expressed in the article are solely those of the author and do not reflect those of Times of Oma
