© 1999 International Monetary Fund
Production: IMF Graphics Section
Typesetting: Joseph Ashok Kumar
Figures: In-Ok Yoon
Library of Congress Cataloging-in-Publication Data
Oman beyond the oil horizon : policies toward sustainable growth / edited by Ahsan Mansur and Volker Treichel.
p. cm. — (Occasional paper, ISSN 0251-6365 ; no. 185)
Includes bibliographical references.
ISBN 1-55775-833-6
1. Oman—Economic policy. 2. Industrial policy—Oman. 3. Diversification in industry—Oman. 4. Petroleum industry and trade—Oman. 5. Sustainable development—Oman. I. Mansur, Ahsan S., 1951– II. Treichel, Volker, 1965– III. International Monetray Fund. IV. Occasional paper (International Monetary Fund); no. 185.
HC415.35.0525 1999
338.95353’07—dc21
99-052694
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Contents
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Preface
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I Overview
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Ahsan Mansur
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II Growth and the Saving-Investment Balance: Past Performance and Future Challenges
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Emmanuel K. Money
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Growth Performance and Sectoral Transformation
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Aggregate Supply
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Use of Resources
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Sectoral Transformation
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Investment and Domestic and National Saving
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Saving and Investment
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Resource Balance
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Five-Year Plan Targets
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Total Factor Productivity and the Policy Environment
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Total Factor Productivity
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Policy Environment
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Prospective Challenges
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Saving-Investment Balance
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Factor Productivity
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Diversification
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References
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III Oman in Regional Perspective
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Emmanuel K. Martey
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Macroeconomic Developments and Shared Issues
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Regional Cooperation
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Prospective Challenges
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References
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IV Stance of Fiscal Policy and Non-Oil Economic Growth
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Volker Treichei
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Fiscal Policy and Growth: An Overview of the Literature
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Tax Policy
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Expenditure Policy
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Budgetary Balance
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Fiscal Policy in Oman, 1981–97
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Developments in the Fiscal Sector and the Stance of Fiscal Policy
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Role of Oil Revenues in Determining Expenditure Policy
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Impact of Fiscal Policy on Non-Oil GDP Growth
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Sustainability of Fiscal Policy in Oman
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The Government’s Fiscal Consolidation Plan
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Conclusions
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References
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V Financial Intermediation and the Evolving Role of the Central Bank
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Emmanuel K. Martey
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Institutional Framework
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Commercial Banks
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Nonbank Financial Intermediaries
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Financial Instruments
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Monetary Developments and Features of Financial Intermediation
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Financial Deepening
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Interest Rate Spreads
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Central Bank’s Role in Financial Sector Development and Intermediation
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Institutional Framework
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Prudential Regulation and Supervision
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Framework of Monetary Policy
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Prospects for Transition to Indirect Instruments
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Challenges for the Medium Term
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References
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VI Scope for Monetary Policy Independence in Oman
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Khaled Sakr
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Conceptual Background and Methodology
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An Empirical Investigation
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Developments from Late 1989 to Early 1991
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Developments from Early 1991 to October 1993
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Developments Since October 1993
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Econometric Testing
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Conclusions
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References
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VII External Shocks, Policy Responses, and Domestic Adjustment
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Saade Chami
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External Shocks and Adjustment
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Role of Macroeconomic Policies
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Structural Reforms
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Labor Market and Wage Policy
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Adjustment to Terms-of-Trade Shocks in Oman
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Policy Setting and Constraints
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Terms-of-Trade Shocks and Policy Responses
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A Methodology for Evaluating Policy Responses
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Quantitative Evaluation of Responses to Shocks
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Policy Instruments and Economic Responses
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Fiscal Policy
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Monetary and Exchange Rate Policy
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Wage Policy
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Other Structural Reforms
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Concluding Observations
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References
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Appendix I Fiscal Impulse Analysis
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Boxes
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4.1. Selected Fiscal Indicators in Regional Perspective
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7.1. The Indonesian Experience with External Shocks
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Tables
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2.1. Growth of GDP, the Oil and Non-Oil Sectors, and Real GDP Per Capita
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2.2. Determinants of Growth, Investment, and Saving, 1982–97
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2.3. Growth in GDP, Saving, and Investment
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2.4. Relative Price Shifts
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2.5. Saving-Investment Balances and the Resource Balance
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2.6. Saving and Investment Ratios
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2.7. Contributions to Economic Growth
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2.8. Growth and the Macroeconomic Environment
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3.1. Oman and the GCC Countries: Selected Indicators, 1991–97
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3.2. Regional Trade
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4.1. Selected Fiscal Indicators
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4.2. Fiscal Impulse Analysis
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4.3. Determinants of Non-Oil Real GDP Growth, 1981–97
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5.1. Key Indicators of the Muscat Securities Market
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5.2. Financial Deepening
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5.3. Selected Commercial Banking Indicators
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5.4. Interest Rate Spreads
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6.1. Budget Financing Needs
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6.2. Debt Instruments and National Saving
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6.3. Tests for Cointegration (Dickey-Fuller Statistic)
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7.1. Terms-of-Trade Shocks, Performance Measures, and Policy Instruments, 1981–97
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7.2. Terms-of-Trade Shocks and Macroeconomic Responses
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7.3. Changes in Average Unit Labor Cost and Its Components
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Figures
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2.1. Growth and Composition of Real GDP
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2.2. Growth of Real GDP and of Income Per Capita
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2.3. Saving, Investment, and the Resource Balance
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3.1. Oman and the GCC Countries: Oil Dependency and Openness of the Economy
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4.1. Overall Fiscal Balance
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4.2. Composition of Expenditure
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4.3. Composition of Revenue
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4.4. Civil and Capital Expenditure
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4.5. Real Growth of Expenditure and of Non-Oil GDP
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4.6. Planned Fiscal Adjustment Under the Fifth Five-Year Plan
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4.7. Indonesia: Selected Fiscal indicators
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5.1. Selected Monetary Indicators
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6.1. Omani and U.S. Interest Rates and Spreads
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7.1. Terms of Trade and the Real Effective Exchange Rate
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7.2. Unit Labor Costs in Selected Industries
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The following symbols have been used throughout this paper:
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. . . to indicate that data are not available;
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— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
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– between years or months (e.g., 1994–95 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
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/ between years (e.g., 1994/95) to indicate a crop or fiscal (financial) year.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Preface
This Occasional Paper originated as part of the International Monetary Fund’s country work on Oman during 1996–97 as background for that country’s Article IV consultation discussions. The authors are grateful to the Omani authorities for their cooperation and constructive suggestions. The authors would also like to thank Paul Chabrier, David Burton, Mohamed El-Erian, V. Sundararajan, Abdelali Jbili, Paul Duran, and Helga Treichel for their encouragement and support. The authors would like to thank Saeed Mahyoub for research assistance and Michael Treadway of the External Relations Department, who edited the paper for publication. The views expressed here are the sole responsibility of the authors and do not necessarily reflect the opinions of the government of Oman or the Executive Directors of the IMF. Although the study covers developments through 1997, the challenges faced by Oman in 1998 underscored the continued relevance of the findings of this study.