Sultanate of Oman
ISLAMIC BANKING IN OMAN
.
ارتساس ناميإ دمحم د تاجاحيم
يعرشلا مازتللاو قيقدتلا سيئر
Muhammad Iman Sastra Mihajat, Ph.D
Sultanate of Oman
Sultanate of Oman
OVERVIEW OF OMAN
Location, area and topography
Sultanate of Oman
OVERVIEW OF OMAN
HistoryOman has long been a centre of trade and commerce, historically focusing on maritime trade (from the seventh century to the 15th century) and agriculture (from 1856 to the late 1960s).
Since the discovery of oil (in or around 1967), its extraction and exportation has served as the backbone of Oman’s economy and is the principal contributor to government revenues, exports and GDP. Dubai
Mercantile Exchange’s Oman Crude Oil Futures Contract (DME Oman) is now the third of three global crude
oil benchmarks and sets the benchmark export price for crude oil produced in Oman and Dubai. Under the leadership of His Majesty the Sultan (from 1970), oil production in Oman has increased dramatically. The Government of Oman has used oil revenues to fund significant capital investment in infrastructure and social
programmes, including health care and education (see “The Economy of Oman – Gross Domestic Product and
Oil Production”). Since the mid-1970s, the Government of Oman has used short and long-term development plans to effect economic growth. The long-term development plan entitled “Vision 2020” (adopted in June 1995) focuses on reducing Oman’s dependence on oil and diversifying economic activity by increasing activity
in non-oil sectors, for example, infrastructure and labour sectors (see “The Economy of Oman – Background”).
All subsequent development plans address the implementation of this strategy (most recently, the Eighth
Five-Year Development Plan (2011-2015), see “The Economy of Oman – Development Plans and Infrastructure
Sultanate of Oman
OVERVIEW OF OMAN
Population
As at July 2015, the total population of Oman was registered by the National Centre for Statistics
and Information to be 4.2 million of which 43.6 per cent. were expatriates and 56.4 per cent. were
Oman nationals. This represents an increase in the population of approximately 50 per cent.
compared to the 2010 Oman census, which reported a population of 2.8 million.
Government organisations and political background
Sultanate of Oman
Decree No. 101/96 (the Basic Law). The Basic Law serves as the constitution in Oman. The Basic Law sets
out the system of governance in Oman, including general state policies and basic rights for citizens, and
the bicameral nature of the legislature. The Council of Oman (Majlis Oman) implements general state
policies and is split into two chambers: the upper chamber, the State Council (Majlis Al Dawala) and the
lower chamber, the Consultative Council (Majlis Al Shura). The State Council has advisory powers only and
its members are appointed by His Majesty the Sultan. Members of the Consultative Council are elected democratically for a term of four years. A representative from each wilayat is elected; two candidates in the case of wilayats with a population of 30,000 or more. The next elections will be held in October 2015. In recent years, steps have been taken by His Majesty the Sultan to promulgate constitutional changes to the Basic Law and further diversify decision-making powers. In 2011, His Majesty the Sultan issued Royal Decree 39/2011, which granted greater powers to both the Consultative and State Councils, most notably granting legislative and monitoring powers to the Consultative Council.
Sultanate of Oman
Foreign relations and international organisations
Oman pursues an independent foreign policy with the aim of fostering good relations with its neighbours as well as other countries, in particular, the United States, the European Union and member countries of the Organisation for Economic Cooperation and Development. Historically, Oman has acted independently from other Arab gulf states in regional disputes and, on occasion, has acted as a broker. Oman’s approach to foreign relations is both non-confrontational and pragmatic. As a result, Oman has enjoyed political and economic stability for the last 40 years.
Oman is a member of the United Nations and the World Bank and the International Bank for Reconstruction and Development. In November 2000, Oman became a full member of the World Trade Organisation, resulting in, amongst other developments, the liberalisation of its foreign investment and
taxation laws. Oman has been an active member of the International Monetary Fund (the IMF) since
1971.
Sultanate of Oman
The Central Bank of Oman
The Central Bank was established in December 1974 by the Banking Law 1974, as amended by Royal
Decree 114/2000 (the Banking Law), which sets out its functions and responsibilities. In addition to the
formulation and implementation of monetary policy, these include regulation and supervision of the banking system (including implementation of the “Basel III” package of reforms released by the Basel Committee in 2010 and 2011) and the execution of foreign currency transactions on behalf of the Government of Oman. The Central Bank sets monetary policy independently after consulting with the Government of Oman about its fiscal policy objectives. The Central Bank also provides advice to the Government of Oman on economic policy.
The management of the Central Bank is conducted by the Deputy Chairman of the Board of Governors of the Central Bank, the Board of Governors and the Executive President of the Central Bank. Each of the Board of Governors and the Executive President is appointed by His Majesty the Sultan (who is also the Chairman of the Board of Governors). The members of the Board of Governors are appointed for five year terms. The Banking Law empowers the Board of Governors in the performance of all regulatory and policy central banking functions in Oman.
Sultanate of Oman
The Financial Affairs and Energy Resources Council and the State General Reserve
Fund
The Financial Affairs and Energy Resources Council is responsible for Oman’s fiscal policy,
including the endorsement of the annual General State Budget. The Financial Affairs and
Energy Resources Council also regulates and supervises the State General Reserve Fund. The
State General Reserve Fund was established in 1980 by Royal Decree 1/80. It endeavours to
achieve long term sustainable returns on the revenues generated from oil and gas, by
investing in a diversified portfolio of asset classes in more than 25 countries worldwide.
The Oman Investment Fund
Sultanate of Oman
The Capital Market Authority
The CMA was established by Royal Decree 80/98 issued on 9 November 1998, and commenced its duties on 9 January 1999.
The CMA is a government entity with financial and administrative independence. The principal role of the CMA is to supervise the capital market and insurance sectors in Oman and to develop the legal framework governing the same (for example, promulgating the Code of Corporate Governance for companies listed on the Muscat Securities Market). A number of entities are regulated by the CMA, including the Muscat Securities Market.
Sultanate of Oman
THE ECONOMY OF OMAN
Background
Oman is classified by the World Bank as a high-income economy. In February 2015, Standard & Poor’s Ratings Services lowered its foreign currency sovereign credit ratings on Oman to the current rating of “A-/A-2” from “A/A-1” with a stable outlook, while Moody’s Investors Service affirmed the ratings for Oman’s foreign currency country ceilings at “Aa3” for bonds and “A1” for deposits, its short-term foreign currency ceilings at “Prime-1” and its local currency country risk ceiling at “Aa3”, although the outlook was changed from “stable” to “negative” (see “Risk Factors – Risks Relating to Investments in Oman – Economic Considerations”).
Oman’s economic development is coordinated through a series of year development plans. Specifically, each five-year development plan sets forth the parameters within which annual national budgets are determined (including the level of permissible budget deficits and the level of withdrawals from the Central Bank’s general reserves permitted to meet such deficits). Withdrawals from reserves exceeding budgeted amounts must be specifically authorised by Royal Decree of His Majesty the Sultan.
Sultanate of Oman
THE ECONOMY OF OMAN
Gross domestic product and oil production
According to provisional data, Oman’s GDP at current market prices grew 3.8 per cent. in 2014 compared to growth of 2.4 per cent. in 2013 (provisional data) and 12.4 per cent. in 2012. The slowing growth rate was in part due to a global decrease in oil prices. The average price for Oman oil in 2014 was U.S.$103.2 per barrel compared to U.S.$105.5 per barrel in 2013 and U.S.$109.5 per barrel in 2012. However, total oil production increased to 344.4 million barrels in 2014 compared to 343.8 million barrels in 2013 and 336.2 million barrels in 2012.
According to preliminary data, GDP at current market prices was OMR 6.5 billion as at 31 March 2015; a decrease of 14.2 per cent. from 31 March 2014 (provisional data). Average oil prices declined by 41.5 per cent. during this period.
Sultanate of Oman
The following table compares oil prices, production and exports for the years ended 2008 to 2014 and the periods from January to July 2014 and 2015:
Year
Average Oman Oil
Prices (U.S.$ per
2009
56.7
(43.9)
297.0
7.3
244.0
12.6
2010
76.6
35.1
305.0
2.7
271.8
11.9
2011
103.0
34.5
304.0
0.3
269.4
(0.9)
2012
109.5
6.4
336.2
10.6
279.8
3.9
2013
105.5
(3.7)
343.8
2.3
304.2
8.7
2014
103.2
(2.2)
344.4
0.2
292.2
(3.9)
Jan-July 2014
105.4
-
200.5
-
171.9
Sultanate of Oman
According to provisional data, in the year ending 31 December 2014, petroleum activities accounted for approximately 47.5 per cent. of Oman’s GDP at current market prices, against 50.6 per cent. in 2013 (provisional data), 52.3 per cent. in 2012 and 53.2 per cent. in 2011. According to preliminary data, at the end of March 2015, petroleum activities accounted for approximately 36.8 per cent. of Oman’s GDP at current market prices, against 49.9 per cent. at the end of March 2014 (according to provisional data). However, natural gas activity increased by 16.3 per cent. from the end of March 2014 to the end of March 2015.
Despite the continuing dominance of petroleum activities in Oman, the Government of Oman remains focused on industry growth in areas other than oil and gas in order to diversify its economy, concentrating in particular on the development of industrial, services and agriculture activities and creating jobs in these sectors. For example, the Government of Oman has encouraged the development of sustainable tourism by allotting lands, encouraging investments in hotels and developing tourism complexes in various parts of the country. Proceeds from the oil and gas sector are being used for such developments, to achieve the Government of Oman’s aim of diversifying its economy and ultimately ensuring continued robust economic growth.
According to provisional data, non-petroleum activities contributed 59.9 per cent. to Oman’s GDP at current market prices in 2014 against 57.2 per cent. in 2013 (provisional data), 54.6 per cent. in 2012 and 54.0 per cent. in 2011. According to preliminary data, at the end of March 2015, non-petroleum activities accounted for approximately 68.4 per cent. of Oman’s GDP at current market prices, against 56.3 per cent. at the end of March 2014 (according to provisional data). This increase was attributed to the increase in services activities (6.6 per cent.) and agriculture and fisheries activities (5.2 per cent.).
Sultanate of Oman
Output Indicators
Items 2010 2011 2012 2013(1) 2014( 1) End of
March
2014(1)
End of March
2015(2)
GDP at Current Market 22,547.6 26,122.0 29,353.3 30,061.3 31,215.2 7,589.2 6,508.3 Prices (OMR million)
Growth rate (%) 21.2 15.9 12.4 2.4 3.8 - (14.2)
Petroleum Sector GDP 10,388.4 13,888.8 15,350.2 15,205.8 14,840.0 3,789.1 2,395.7 (OMR million)
Growth rate (%) 40.7 33.7 10.5 (0.9) (2.4) - (36.8)
Non-Petroleum Sector 12,633.7 14,111.3 16,029.6 17,198.3 18,691.9 4,271.7 4,448.9 GDP (OMR million)
Growth rate (%) 8.6 11.7 13.6 7.3 8.7 - 4.1
Notes:
Sultanate of Oman
GDP at Current Market Prices
2013(1) 2014(1) Total Total
End of End of
March March
2014(1) 2015(2)
(Rial Omani Million)
Economic Activity
1. Total Petroleum Activities 15,205.8 14,840.0 3,789.1 2,395.7
Crude Petroleum 14,047.0 13,780.1 3,515.9 2,077.9
Natural Gas 1,158.8 1,059.9 273.3 317.8
2. Total Non-Petroleum Activities (2.1+2.2+2.3)
17,198.3 18,691.9 4,271.7 4,448.9
2.1 Non-Petroleum Industrial Activities 5,496.7 5,471.3 1,142.7 1,115.8
Mining & Quarrying 114.7 124.5 29.4 32.4
Sultanate of Oman GDP at Current Market Prices
2013(1) 2014(1 ) Total Total
Electricity & Water Supply 346.2 376.2 66.0 72.1
Construction 1,897.0 2,054.3 354.8 343.8
2.2 Agriculture & Fishing 371.2 406.1 91.7 96.5
2.3 Services Activities 11,330.4 12,814.5 3,037.3 3,236.6
Wholesale & Retail Trade 2,042.3 2,083.6 606.3 619.1
Restaurants & Hotels 238.2 258.7 71.7 74.8
Transport, Storage & Communication 1,469.2 1,574.7 544.3 593.5
Financial Intermediation 1,383.4 1,511.7 345.9 384.5
Real Estate Services 1,155.1 1,230.5 244.1 258.6
Public Administration & Defence 2,764.6 3,163.9 596.0 602.5
Other Services 2,277.6 2,991.5 629.0 703.6
3. Financial Intermediation Services Indirectly (612.6) (640.3) (152.1) (164.0)
Measured
4. Gross Domestic Product at Producers Prices 31,791.5 32,891.6 7,908.7 6,680.6
(1+2-3)
5. Taxes Less Subsidies on Products (1,730.2) (1,676.3) (319.5) (172.3)
6. Gross Domestic Product at Current Market 30,061.3 31,215.2 7,589.2 6,508.3
Prices (4+5)
Notes:
Sultanate of Oman
Monetary policy and inflation
The exchange rate of the Omani Rial has been pegged to the average consumer price index for Oman stood at containing demand, and favourable international commodity and import prices increasing supply.
The following table sets out percentage changes in the annual consumer price index for Oman by type of expenditure:
Sultanate of Oman
Balance of payments
Foreign trade
Foreign trade plays a pivotal role in Oman’s economy, with exports (calculated on an f.o.b. basis) and recorded imports representing 101.7 per cent. of Oman’s GDP at current market prices in 2014 (according to provisional data).
The following table sets out total merchandise exports and total recorded
7 20,463 6,758 4,536 8.2 (5.7) (32.9)
Total Recorded Merchandise
10,811 13,20 1
11,268 3,715 3,605 22.1 (14.6) (3.0) Imports( 2 )
Note: (1) Provisional
(2) Imports include recorded imports only. As a result, the trade balance and/or import figures given in these columns may not match the balance of payments tables (or trade balance and/or import figures) given elsewhere in this prospectus and/or in other Central Bank or National Centre for Statistics and Information publications. Imports do not include merchandise imports by customs outlets.
Oil and gas exports remain dominant, amounting to 66.1 per cent. of total merchandise exports in 2013 and
65.5 per cent. of total merchandise exports in 2014 (in each case, calculated on an f.o.b. basis). According to provisional data, at the end of April 2015, 62.5 per cent. of total merchandise exports were oil and gas exports compared to 66.1 per cent. at the end of April 2014.
Sultanate of Oman
The table below sets out the value of merchandise trade transactions for 2012 to 2014 and April 2014 and 2015:
Merchandise Liquified Natural Gas 1,615 1,670 1,493 (10.6) 529 431 (18.5) Other
(Non-Oil) Omani
Exports 3,594 3,807 4,126 8.4 1,260 1,008 (20.0) Re-Exports 2,486 3,541 2,944 (16.9) 1,034 694 (32.8)
2. Total Recorded
9,236 8,496 9,196 8.2 3,043 930 (69.4)
Notes: (1) Provisional
(2) Imports include recorded imports only. As a result, the trade balance and/or import figures given in these columns may not match the balance of payments tables (or trade balance and/or import figures) given elsewhere in this prospectus and/or in other Central Bank or National Centre for Statistics and Information publications. Imports do not include merchandise imports by customs outlets.
Other GCC member countries are major trading partners of Oman, both in terms of exports and imports. The UAE was Oman’s largest trading partner in 2014, 488.6 million in non-oil Omani exports (including re-exports) and OMR 1,173.3 in recorded merchandise imports with Oman.
Current account
Sultanate of Oman OMR 7,358 million in 2013 (an increase of 2.0 per cent. from OMR 7,217 million recorded in 2012). These net outflows resulted from a number of factors,
including high levels of profit repatriation in the oil and gas sector.
Capital and financial account
Oman’s capital and financial account recorded a net outflow of OMR 788 million in 2014 (preliminary data) compared with a net inflow of OMR 2,277 million in 2013 and a net outflow of 2,411 recorded in 2012.
A continued focus by the Government of Oman on attracting foreign direct investment (FDI) through its liberal economic policies (see “– Background”) resulted in inflows under this sector of OMR 333 million in 2013 compared to outflows of OMR 13 million in 2012. The leading FDI investments in 2013 were in oil and gas at 49.0 per cent. followed by financial intermediation at 16.6 per cent. and manufacturing at 15.2 per cent. According to preliminary data, the Government of Oman recorded net outflows of OMR 357 million in foreign direct investment in 2014. The large increase witnessed in FDI outflows during 2014 primarily reflected transactions related to the acquisition made by Oman Oil Company of Oxea from Advent Chemicals in 2013.
Balance of payments and reserve assets
Oman’s balance of payments position remained comfortable in 2014. According to preliminary data, an overall balance of payments surplus of OMR 429 million was recorded in 2014 (compared to a surplus of OMR 4,725 million in 2013 and OMR 397 million in 2012), which resulted in an increase of OMR 196 million in State General Reserve Fund balances of the Government. The Central Bank’s foreign exchange reserves at the end of 2014 provided cover for seven months of merchandise imports and close to four months cover for imports of goods, services, income payments and current transfers combined in 2014 of the Government of Oman.
The Central Bank’s foreign assets (net of valuation adjustments) increased by 4.1 per cent. to OMR 6,276.5 million at the end of 2014, compared to OMR 6,026.6 million at the end of 2013. As at July 2015, the Central Bank held OMR 7,385.8 million in foreign assets.
Sultanate of Oman
The following table shows a breakdown of the Government of Oman’s balance of payments from 2009 to 2014:
Balance A. Current Account (192) 1,881 3,402 2,976 2,018 1,559
1. Goods 4,460 7,200 9,841 10,193 9,376 9,740
Exports (f.o.b.) 10,632 14,073 18,107 20,047 21,697 20,463
Imports (f.o.b.) (6,172) (6,873) (8,266) (9,854) (12,321 ) (10,723)
2. Services (1,485) (1,753) (2,074) (2,338) (2,643) (2,754)
Services (Credit) 623 694 896 1,033 1,127 1,179
Services (Debit) (2,108) (2,447) (2,970) (3,370) (3,770) (3,933)
Balance on Goods & Services 2,975 5,447 7,767 7,855 6,733 6,986
(1+2)
3. Income (1,124) (1,373) (1,591) (1,770) (1,214) (1,466)
Income (Credit) 288 297 282 276 739 467
Income (Debit) (1,412) (1,670) (1,873) (2,047) (1,953) (1,933)
Balance on Goods, Services &
Income (1+2+3) 1,852 4,074 6,176 6,085 5,519 5,520
4. Current Transfers (2,044) (2,193) (2,774) (3,109) (3,501) (3,961)
B. Capital and Financial
Account (1,456) (1,646) (2,358) (2,411) 2,277 (788) (5+6)
5. Capital Account (20) (25) (56) (33) (43) (50)
6. Financial Account (i+ii+iii) (1,436) (1,621) (2,302) (2,378) 2,320 (739)
(i) Foreign Direct
Investment 910 (98) 204 (13) 333 (357) (ii) Portfolio Investment (633) 94 (193) 114 138 (152)
(iii) Other Investment (1,713) (1,617) (2,313) (2,479) 1,849 (228)
(a) Assets (2,945) (1,099) (2,817) (2,702) 2,471 14
(b) Liabilities 1,232 (518) 504 223 (622) (243)
C. Net Errors & Omissions 229 341 (470) (168) 429 (342)
D. Overall Balance 702 576 574 397 4,725 429
E. Reserve Assets (297) (576) (574) (397) (4,725) (429)
Sultanate of Oman
Public ftnances
In recent years, the fiscal trend in Oman has reflected increasing public expenditure. A total net fiscal deficit of OMR 1,064.3 million was recorded in 2014, compared to a net fiscal deficit of OMR 82.6 million recorded in 2013. The higher deficit recorded in 2014 was the net result of a relatively modest increase in government revenues (see – Revenues) and an expansionary fiscal policy.
For the six month period ended 30 June 2015, the Government of Oman recorded a net fiscal deficit of OMR 1,218.5 million compared to a net fiscal surplus of OMR 1,000.0 million recorded for the six month period ended 30 June 2014. As part of the Government of Oman’s fiscal reforms, it currently intends to improve public spending while focusing on sources of non-oil revenues in order to ensure fiscal sustainability in the long run.
Revenues
In 2014, the Government of Oman recorded total revenues of OMR 14.1 billion, representing an increase of approximately 1.4 per cent. from total revenues of 13.9 billion recorded in 2013. During 2013, the Government of Oman’s total revenues increased by 3.2 per cent. from total revenues of OMR 13.5 billion recorded in 2012.
In particular, the Government of Oman’s revenues were impacted by a 2.2 per cent. decline in average Oman oil price in 2014, resulting in a year-on-year decrease in net oil revenues (after transfers to reserve funds) of
2.2 per cent. in 2014 compared to a year-on-year increase of 6.1 per cent. recorded for 2013 and 26.1 per cent. recorded for 2012.
In 2014, oil revenues contributed OMR 10.2 billion or 72.3 per cent. of total revenues compared to 10.4 billion or 75.0 per cent. recorded in 2013 and 9.8 billion or 73.0 per cent. in 2012 (in each case, net oil revenues after transfers to reserve funds).
For the six month period ended 30 June 2015, the Government of Oman recorded total revenues of OMR
4.6 billion compared to total revenues of OMR 7.2 billion for the six month period ended 30 June 2014; a decrease of 36.3 per cent.
For the six month period ended 30 June 2015, the Government of Oman recorded total net oil revenues (after transfers to reserve funds) of OMR 2.8 billion or 62.2 per cent. of total revenues compared to net oil revenues (after transfers to reserve funds) of OMR 5.3 billion or 73.4 per cent. of total revenues for the six month period ended 30 June 2014; a year-on-year decrease in net oil revenues (after transfers to reserve funds) of 46.1 per cent.
Expenditure
Government of Oman total public expenditure for 2014 was OMR 15.2 billion; an increase of 8.4 per cent. from total public expenditure of 14.0 billion recorded in 2013 (a smaller increase of 3.2 per cent. was recorded in 2013 from total public expenditure of OMR 13.6 billion in 2012). This larger increase in total public expenditure reflected a more pronounced, accommodative, expansionary fiscal policy. However, the increases in total public expenditure recorded in 2013 and 2014 were relatively modest compared to the 26.2 per cent. increase in total public expenditure recorded in 2012.
Sultanate of Oman Total current expenditure increased by 8.9 per cent in 2014 compared to an increase of 0.6 per cent. in 2013 and 43.7 per cent. in 2012. This was due to increases
in current expenditure on civil ministries, as a result of, amongst other things, significant increases in wages and allowances for public employees, as well as an increase in current expenditure on oil production.
For the six month period ended 30 June 2015, the Government of Oman recorded total current expenditure of OMR 3.9 billion compared to total current expenditure of OMR 4.0 billion for the six month period ended 30 June 2014.
An increase of 14.9 per cent. in investment expenditure occurred in 2014 to OMR 3.6 billion (compared to total investment expenditure of OMR 3.1 billion recorded in 2013 and OMR 2.9 billion recorded in 2012). This included a large increase by 18.6 per cent. in capital expenditure for civil ministries (compared to 4.3 per cent. in 2013), mirroring the Government of Oman’s focus on the development of infrastructure in line with its diversification plan (see – Development Plans and Infrastructure Projects) and the improvement of existing infrastructure.
For the six month period ended 30 June 2015, the Government of Oman recorded total investment expenditure of OMR 1.3 billion compared to total investment expenditure of OMR 1.4 billion for the six month period ended 30 June 2014.
In 2014, total investment expenditure on oil and gas production amounted to OMR 1.4 billion, or 39.6 per cent. of total investment expenditure, a slight decrease compared to 1.3 billion, or 42.1 per cent. of total investment expenditure in 2013. In 2012, total investment expenditure on oil and gas production amounted to OMR 1.2 billion or 40.8 per cent. of total investment expenditure. The graph below shows investment expenditure on oil and gas production as a percentage of total investment expenditure for 2010 through to 2014:
Sultanate of Oman
Indebtedness
The following table sets forth certain other debt indicators for the Government of Oman for 2009 to 2014:
%
Stock of Debt 1,044.8 1,136.2 1,247.2 1,360.5 1,486.5 1,526.3 2.7
Principal Repayments 213.9 169.0 47.2 65.8 84.5 89.4 5.8
Interest Payments 45.0 37.4 38.1 45.3 53.6 50.1 (6.5)
Debt Indicators(2)
Debt to GDP Ratio (%) 5.6 5.0 4.8 4.6 4.9 4.8 _
Debt Services Ratio (%)( 3 ) 0.8 0.5 0.4 0.4 0.5 0.5 _
Notes: (1)Provisional
(2)Since non-Government of Oman debt is not included in deriving these indicators, they do not reflect the debt of Oman as a whole, and hence, they are strictly not comparable with standard published debt indicators for other countries.
(3)Relating to external debt of the Government of Oman only. Debt-services ratio implies (principal repayments plus interest payments) as percentage of export of goods and services.
According to provisional data, in 2014, the Government of Oman’s debt to GDP ratio stood at 4.8 per cent. compared to 4.9 per cent. in 2013 and 4.6 per cent. in 2012. The Government of Oman’s debt services ratio remained relatively stable, standing at 0.5 per cent. in 2014 (provisional data), as against 0.5 per cent. in 2013 and 0.4 per cent. in 2012.
The stock of debt increased by 2.7 per cent. to OMR 1.53 billion in 2014. Principal repayments increased by
5.8 per cent. to OMR 89.4 million in 2014 (compared to a year-on-year increase of 28.4 per cent. in 2013) while interest payments decreased by 6.5 per cent. to OMR 50.1 million.
Sultanate of Oman
Development Plans and Infrastructure Projects
The Eighth Five-Year Development Plan (2011-2015) aims to diversify the economy, increasing non-oil activities through public investments in the infrastructure sector. The plan provides for investment in new projects worth OMR 5.6 billion in addition to infrastructure investment by completion of projects carried forward from the Seventh Five-Year Development Plan.
In particular, the Government of Oman has continued to develop the Duqm Special Economic Zone (the SEZ) (established by Royal Decree in October 2011), intended to become a multi-sector industrial and economic hub covering a number of zones: power, general and water desalination and distribution, petrochemicals, warehousing and logistics, light industry, tourism, fisheries and fish processing (as well as the necessary interconnecting infrastructure, including a port, an airport, a railway network and a road system).
The refinery and petrochemicals project, also part of the SEZ, is considered to be one of Oman’s most important investment plans. The project plans to take advantage of the strategic location of the Duqm area, adjacent to key shipping trade routes, and increase oil production (the facility has the potential capacity to produce 230,000 barrels of oil per day) in order to support the oil and petrochemical industries in Oman.
2014 and 2015 Budget
The Government of Oman’s budgets are prepared with the aim of supporting the objectives described in the most recent development plan; in the case of the 2014 and 2015 State General Budgets, to implement the Eighth Five-Year Development Plan.
The State General Budget 2014 aimed to rationalise and control Government of Oman spending to sustainable limits and at the same time improve non-oil revenues. The State General Budget 2014 also focused on reducing the dependence on oil through enhancing the contribution of promising sectors like tourism, agriculture and fisheries. Emphasis was also placed on increasing domestic and foreign investment and promoting public-private partnerships.
Sultanate
1. Total Revenues(1) 8,800.0 13,474.5 11,155.0 13,907.6 11,700.0 14,107.5 11,600.0 (0.9)
Net Oil Revenues (after transfers to
reserve funds) 6,100.0 9,831.3 8,055.0 10,429.5 8,150.0 10,205.2 7,700.0 (5.5) Gas Revenues 1,100.0 1,583.7 1,300.0 1,495.3 1,500.0 1,687.6 1,460.0 (2.7) Other Current Revenues 1,570.0 2,033.7 1,780.0 1,931.0 2,000.0 1,983.7(2) 2,380.0 19.0
Capital Revenues 23.0 13.0 15.0 30.2 20.0 15.8 25.0 25.0 Capital Repayments 7.0 12.8 5.0 21.6 30.0 215.2(2) 35.0 16.7
2. Total Public Expenditure
(2.1+2.2+2.3) 10,000.0 13,555.1 12,855.0 13,990.2 13,500.0 15,171.8 14,100.0 4.4 2.1. Current Expenditure 6,445.0 8,772.7 8,125.0 8,822.0 8,664.0 9,606.2 9,576.0 10.5 Defence & National Security 2,585.0 4,742.5 3,555.0 4,494.2 3,700.0 4,210.8 3,800 2.7 Civil Ministries 3,475.0 3,503.3 4,070.0 3,848.5 4,487.0 4,762.7 5,166.0 15.1 Interest Paid on Loans 45.0 45.3 60.0 53.6 45.0 52.9 50.0 11.1 Gas Production Expenditures 90.0 88.9 80.0 81.8 92.0 95.3 210.0 128.3 Oil Production Expenditures 250.0 392.7 360.0 343.9 340.0 484.5 350.0 2.9
2.2. Investment Expenditure 2,710.0 2,886.5 3,145.0 3,120.0 3,228.0 3,584.2 3,214.0 (0.4) Development Expenditure for Civil
Ministries 1,400.0 1,650.3 1,800.0 1,744.3 1,800.0 2,093.6 1,650.0 (8.3) Capital Expenditure for Civil Ministries
25.0 58.2 30.0 60.7 38.0 72.0 44.0 15.8 Oil Production Expenditures 650.0 659.9 660.0 752.7 690.0 748.1 780.0 13.0 Gas Production Expenditures 635.0 518.1 655.0 562.3 700.0 670.5 740.0 5.7
2.3. Participation & Other
Expenses/Support 845.0 1,895.9 1,585.0 2,048.2 1,608.0 1,981.4 1,310.0 (18.5) 4. Surplus/Deficit (1,200.0) (80.6) (1,700.0) (82.6) (1,800.0) (1,064.3) (2,500.0)
-5. Financing(3) 1,200.0 80.6 1,700.0 82.6 1,800.0 1,064.3 2,500.0
-Net Grants Received - (32.7) 0.0 (43.4) 0.0 (50.2) 200.0 -Drawing from Reserves 200.0 - 350.0 - 400.0 0.0 700.0 -Net loans Received 200.0 (36.7) 150.0 (74.0) 200.0 (60.3) 200.0 -Development Bonds (Net) 100.0 150.0 200.0 200.0 200.0 100.0(2) 400.0
-Remaining Surpluses Brought from
Previous Years 700.0 - 1,000.0 - 1,000.0 1,074.8 1,000.0 -Change in Government of Oman
Accounts 0.0 - 0.0 - - - -
-Notes:
(1) Total Revenues also includes corporate income tax and custom duties.
(2) Provisional.
Sultanate of Oman
The State General Budget 2015 and the Eighth Five-Year Development Plan (2011-2015) focus on reducing dependence on oil through industry diversification and creating new job opportunities, and emphasise the importance of certain goals, namely:
• investment spending to encourage economic growth rates;
• continued implementation and supplementation of current development projects, including hospitals, schools, airports, expansion of ports and
motorways and electricity and water projects (for example the infrastructure development project to increase aquaculture production, completion of the wastewater network in Muscat and the SEZ developments described above);
• implementation of new priority projects, including projects that support the economic diversification policies and projects that accede to the basic
needs of citizens in education, health, housing, water and sanitary drainage (for example, the opening of 11 new hospitals and health centres and budgetary allocations to the housing loans programme of the Oman Housing Bank);
• development in the services sector (which, according to provisional data, grew by 13.1 per cent. (GDP at current market prices) in 2014); in software and tourism industries, among others (for example, supporting projects of the Oman Tourism Development Company, constructing hotels in Muscat as well as completing the Oman Convention & Exhibition Centre project);
• support for small and medium sized enterprises (SMEs) and the implementation of programmes to accelerate their development (for example, policies introduced to encourage public sector workers to start their own business by paying a year’s salary up front and the Central Bank’s initiative to direct banks to allocate a minimum of five per cent. of their total credit to SMEs);
• development and increased efficiency and productivity rates in the oil and gas sector (such as the refinery and petrochemicals project in the SEZ
highlighted above); and
• privatisation of a number of state-owned companies to help develop Oman’s capital markets (see “Risk- Factors – Risks Relating to Investments in Oman - The Secondary Market”).
Sultanate of Oman
Islamic Banking in Oman
The implementation of Islamic banking, finance and investment in the
Sultanate of Oman, effected by the Royal Decree 69/2012 of
December 6, 2012 Amending Some Provisions of the Banking Law
promulgated by Royal Decree 114/2000, as well as the Central Bank
of Oman’s Circular IB 1 of December 18, 2012, which adopted the
relevant Islamic banking framework.
Sultanate of Oman
Contd…
•
The Sultanate of Oman has established within the last four years the legal and regulatory framework which
applies to Islamic banks and to the Islamic “windows” of conventional banks that are licensed to operate in
the Sultanate. Oman was the last country in the six-nation Gulf Cooperation Council to introduce Islamic
finance.
•
The Islamic banks began operating in the Sultanate after the Central Bank of Oman (CBO) had put the
necessary legislation (Circular IB 1 of December 18, 2012) in place. Capital Market Authority (CMA) of
Oman, has recently licensed business activity of Bank Nizwa and Izz International Bank (Al Izz Islamic
Banking), which are primarily focused on retail Islamic banking especially consumer finance, they may at a
later stage under the provisions of their license offer asset management, investment funds, wealth
management and Sukuk products. Swiss private bank, Bank Sarasin, and Alpen Capital LLC (Oman), an
Sultanate of Oman
• 2. Relevant Laws
• I. Islamic Banking Royal Decree 69/2012
• The Islamic Banking Law amending the Banking Law of Oman comprises of six articles in one new chapter of the Banking Law (Chapter Six,
entitled, “Islamic Banking”) and constitutes the foundation of the Islamic banking system, largely to be developed by the Central Bank of Oman regulatory frameworks. Islamic Banking addresses substantial structural matters (such as transactional base of Islamic banking
industry, relation to taxation, land law constraints and the provisions of other areas of substantive law, Shari’ah supervisory boards) and few procedural issues (obligation of the Board of Governors of the CBO to issue regulatory framework for Islamic banking, to license Islamic banks and Islamic windows at conventional banks) as well as interpretation rules dealing with the conflict of law situations.
• The status of Islamic banking transactions with regard to taxation and land law issues is illustrated in above mentioned Art. 124 and following
Art. 125 of the Islamic Banking Law. Art. 124 of the amended Banking Law mandates the transactional base of Islamic banking in Oman, stating that, without prejudice to the restrictions set by the Board of Governors, the banks licensed to practice Islamic banking shall in the context of such practice, conduct all transactions – without limitation – in due consistence with the provisions of Islamic Shari’ah Law, and in particular the following:
• a) Accepting deposits and management of joint or specific investment accounts with or without fees and profits.
• b) Financing and investing in Mudaraba, Musharaka, Murabaha, ljara, Salam, Istisna or Qard Hassan and other Shari’ah formulas. • c) Issuing instruments guaranteed by assets and projects, and the investment therein.
• d) Dealing in real estate and movable property through buying, selling, investment, letting and leasing, in exception to the restrictions set
Sultanate of Oman
• The Art.124 authorization is supplemented by Art.125, which states that “Banks licensed to practice Islamic banking shall be exempted from fees levied on transactions related to the appropriation of real estate and movable property, or the letting or leasing thereof; conducted for the purpose of conducting Islamic banking in accordance with the provisions of this Law”. • Discussed amendment to the Banking Law introduces as well new regulations of Shari’ah supervisory committee. First
paragraph of Art.126 reads that, a bank licensed to practice Islamic banking shall have a Shari’ah supervisory committee; and the regulations shall determine its composition, competence and work procedure, along with the requisite qualifications of its members, whose appointment and remuneration shall be decided by a resolution of the General Assembly of the Bank. The form, prerogatives and functioning of this Shari’ah supervisory boards are governed by the Islamic Banking Framework.
• Additionally, according to Art.126 para.2 the Board of Governors shall establish a High Authority for Shari’ah Supervision, and the establishing decision shall specify its composition, competence and the work procedure therein; along with the requisite qualifications of its members and their remuneration. Authority’s goal is to ensure the compatibility of Islamic banking and takaful products with Shari’ah principles.
• The Board of Governors shall set the regulations, circulars and instructions relating to Islamic banking whether concerning licensing, regulation, management and Shari’ah supervision, capital, credit, investment and exposure limits, accounting, reporting, disclosure, risk management or otherwise. The Central Bank shall issue the license to conduct Islamic banking
Sultanate of Oman
•
II. Islamic Banking Regulatory Framework Circular IB 1 of December 18, 2012
•
By virtue of Royal Decree 69/2012, published on December 6, 2012, amending the Banking Law of 2000, Central
Bank of Oman (CBO) issued Islamic Banking Regulatory Framework (IBRF), regulating following areas:
•
Licensing requirements,
•
General Obligations and Governance,
•
Accounting Standards and Auditor Reports,
•
Supervision and Control,
•
Capital Adequacy,
•
Credit Risks,
•
Market Risks,
•
Operational Risks,
•
Liquidity Risks, and
Sultanate of Oman
• Central Bank of Oman restricted that, licensees, authorized specifically for conduct of Islamic banking under the Banking Law, shall be
fully fledged Islamic banks, Islamic banking windows, consisting of branch(es) of local conventional banks and Islamic banking branches, in Oman, of foreign banks so licensed. Above mentioned shall conduct only Shari’ah compliant transactions covered in the Framework.
• Licenses shall in overall refer to the Banking Law in terms of which Central Bank of Oman is inclined to consider recommendations made
by international banking and financial organizations. Accordingly, relevant norms, recommendations, standards suggested by Basel, FATF, IFSB, AAOIFI etc. shall be of appropriate guidance. Additionally, licenses refer to the CBO for any relative requirements, including
clarifications if needed. Licensees shall also note, that business authorized under the Framework, will be subjected to general as well as specific approvals and restrictions. In specific, certain enabling provisions referring to Sukuk, securitization, subsidiary and similar, in built for possible roll out, do not accrue to licensees automatically and depend upon future policies, authorizations.
• As a notable general position, the Islamic Banking Regulatory Framework makes reference to, and encourages adoption of and
adherence to, various guidelines of the Islamic Financial Services Board (IFSB). The required Shari’ah governance structure is
implemented by mandating each Licensee to provide, in its memorandum and articles of association, for the conduct of its business in accordance with Islamic Shari’ah principles, to establish and maintain systems and controls, to ensure Shari’ah compliance of its
operations and business activities, to appoint a Shari’ah Supervisory Board and to oversee operations from a Shari’ah compliance perspective.
• The next article will address a subset of further licensing requirements and authorized Islamic banking business matters, specifically
Sultanate of Oman
Sultanate of Oman
Sultanate of Oman
ASSETS Jun Jul Aug’16
Cash & CBO 16,469 8,820 10,568 Due from Banks 754 637 486 Investment
Securities 1,142 1,142 1,142 Net Financing 59,370 60,075 61,408 Property &
Equipment 719 702 688
Intangible Asset 195 189 183 Other Assets 486 486 441 TOTAL ASSET 79,135 72,051 74,916
LIABILITIES Jun Jul Aug’16
CASA 10,702 9,450 8,874
TD & Wakala 55,129 49,159 52,150
Interbank - -
-Other Liabilities 2,164 2,245 2,665
Equity 11,140 11,195 11,227 TOTAL LIAB & EQ 79,135 72,051 74,916
Sultanate of Oman
Islamic finance in Oman – An industry
roadmap
• The future for Islamic finance in Oman is promising – the progress made by the
Sultanate so far has been “tremendous”; however, challenges including in the area
of regulation and human capital remain.
Promising progress
•Commanding 7.75% of the total banking assets (as at the end of 2015), and
approximately 8.7% of the Takaful market after a short three years since Islamic
finance was officially introduced into the Sultanate, it is widely believed that Oman is
well on its way to reaching its 10% market share target by 2018.
Sultanate of Oman
Islamic finance in Oman – An industry
roadmap
• Islamic banking in Oman is in the very early stage of development and have just
begun the journey.
• Islamic banking in particular holds significant potential driven by the fact that
overall banking penetration in Oman is still relatively low at 14-16%, Bank
Nizwa have a framework for liquidity/ deposit and in terms of incremental
Sultanate of Oman
Islamic finance in Oman – An industry
roadmap
• The Islamic debt capital market is also highlighted as a bright spot for the GCC
nation. The successful debut of the government in the Sukuk space last year
was well received by market players who view the issuance as a benchmark
for corporates encouraging them to also tap the asset class. Currently, the
Sultanate of Oman
• However, one sovereign issuance is not enough and that the market needs continuous issuances,
bigger in value, to capture regional and international interest. Oman should look into dollar or
euro-denominated Sukuk to attract foreign investment. From a technical aspect, There is no any
issue in issuing such papers as the CMA is flexible.
Challenges
•While the general sentiment is that Oman will continue its positive trajectory over the next five
years, however all stakeholders – regulators and market players alike – will need to work
collaboratively to address perennial issues that are prevalent in Oman as they are in many
emerging Islamic finance markets.
•Key challenges include: the lack of awareness, a dearth in qualified human capital, insufficient
liquidity instruments and a lackluster secondary Sukuk market.
Awareness
Sultanate of Oman
• It has to be noting that public awareness is imperative. Unless end-users
understand what they want, and what they expect in terms of results, it will
be difficult for operators.
Human capital
•The lack of qualified Islamic finance talents well-versed in the industry is an
ongoing concern. Oman shall not wait for the industry to grow then address
the problem. Otherwise, it will take a lot of time.
Sultanate of Oman
Secondary Sukuk market
•With only two issuances in the market, it would perhaps be unreasonable to expect a vibrant secondary
Sukuk market despite the availability of trading infrastructure.
•Need regulatory flexibility – banks currently are only allowed to hold 2.5% of the issuance. Whereas in
the case of the Omantel issuance: out of OMR50 million, only 18% was held by Islamic banks when in
other jurisdictions, the entire issuance will be underwritten by a single bank.”
Liquidity management tools
•As in other markets, Oman is also facing a shortage of Islamic liquidity management tools.
•Many liquidity instruments available in other markets are not available here. Banks have, however,
found solutions using rudimentary basics to take [a] step forward. But what is the next stage?.
Sultanate of Oman
Conclusion
•Oman has penned a remarkable Shariah finance story over the last three years,
especially in comparison to other emerging Islamic finance markets such as
Indonesia, Turkey and Egypt. But it is still a long way to go in terms of building
its human capacity, broadening its liquidity instrument stable as well as raising
awareness; but the country is on the right footing.
Sultanate of Oman
Muhammad Iman Sastra Mihajat, Ph,D Head of Sharia Audit and Sharia Compliance
Al Yusr| Islamic Banking Unit Oman Arab Bank S.A.O.C.
PO Box 2010, Ruwi-112, Muscat, Sultanate of Oman Cell: +968 977 97232 Fax: +968 24 125 126
