Presentasi Islamic Banking in Oman M

Sultanate
of Oman

ISLAMIC BANKING IN OMAN
Muhammad Iman Sastra Mihajat, Ph.D
Head of Sharia Audit and Sharia Compliance

‫ محمد إيمان ساسترا‬. ‫د‬
‫ميحاجات‬
‫رئيس التدقيق واللتزام الشرعي‬

Sultanate
of Oman

HIS MAJESTY SULTAN QABOOS BIN
SAID

Sultanate
of Oman

OVERVIEW OF OMAN

Location, area and topography
Oman is the second largest country by geographical area among the states of the Gulf
Cooperation Council (GCC) region, after Saudi Arabia. It is spread over a land area of
309,500 square kilometres and is strategically positioned in the Middle East between
Asia and Europe, bordering the Arabian Sea, Gulf of Oman and

Persian Gulf and

neighbouring Yemen, Saudi Arabia and the United Arab Emirates. Oman is divided into
11 main governorates, which are subdivided into a total of 59 provinces or wilayats.
Muscat is the business and political capital of Oman.

OVERVIEW OF OMAN

Sultanate
of Oman

History
Oman 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

OVERVIEW OF OMAN

Sultanate
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
Oman is governed as an absolute monarchy. The current monarch, His Majesty Sultan Qaboos bin
Said, is the head of the Government of Oman and is also the Chief of State. He has the power to
issue laws by Royal Decree. His Majesty the Sultan also acts as Prime Minister and as Minister of
Defence, Finance and Foreign Affairs. On 6 November 1996, His Majesty the Sultan enacted the
Basic Law of the State through Royal

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.
Oman’s court system is regulated by Royal Decree 90/99. Three court levels exist in Oman, the Elementary
(Primary) Court is the lowest court, followed by the Court of Appeal, and then the Supreme Court as the
highest court in the country. In addition, an Administrative Court also considers litigious cases made
against the Government of Oman. The judiciary in Oman is, pursuant to the Basic Law, guaranteed
independence, however it ranks subordinate to the powers granted to His Majesty the Sultan.

Sultanate
of Oman

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.
Regionally, Oman is a founding member of the GCC and a member of the GCC’s Permanent Committee
for Petroleum Cooperation, which prepares the long-term petroleum strategy for the GCC. Although not a
member, Oman co-ordinates with the Organization of the Petroleum Exporting Countries regarding oil
production. Oman joined the Arab League in 1971 and the Organisation of the Islamic Conference in 1972.

The Central Bank of Oman

Sultanate
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.
The primary function of the Central Bank is to maintain national currency stability and the stability of the
national banking system. In order to meet this responsibility, the Central Bank regulates the quantity of

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
In 2006, the Government of Oman also established the Oman Investment Fund (the OIF)
(under Royal Decree No. 14/2006 of 6 March 2006 and amended under Royal Decree 38/2010
of 14 April 2010 and 34/2012 of 26 May 2012). The OIF is a wholly owned investment arm of
the Government of Oman. The Fund is an investment vehicle with the objective of building a
diversified portfolio in the production and services sectors, projects and other related fields
that does not contradict with the objectives of other government funds of Oman. The OIF is

Sultanate
of Oman

The Capital Market Authority

Sultanate
of Oman

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.
The CMA also aims to promote market efficiency for investors and raise awareness of investor rights and
the importance of the capital market.

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 five-year development plans. Specifically, each fiveyear 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.

Since 1996, the five-year development plans have focused on diversification of the economy. In accordance with the
Government of Oman’s “Vision 2020” plan (adopted in June 1995 and currently under review), by encouraging
investment in non-oil industries and services, the Government of Oman aims to reduce the oil sector’s contribution to
GDP by 2020. The Government of Oman has also liberalised economic policies to create a favourable investment
climate and to encourage domestic and foreign investment in the country. For example, Oman offers certain tax

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.

During the period from January to July 2015, the average price of Oman oil was U.S.$59.9 per barrel
compared to U.S.$105.4 per barrel for the same period in 2014. Total oil production increased to 206.7
million barrels during the period from January to July 2015 compared to 200.5 million barrels during the
period from January to July 2014.

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

2008
2009
2010
2011
2012
2013
2014

Jan-July 2014
Jan-July 2015

Average Oman Oil
%
Prices (U.S.$ per Change
Barrel)
101.1
56.7
76.6
103.0
109.5
105.5
103.2
105.4
59.9

55.1
(43.9)
35.1
34.5
6.4
(3.7)
(2.2)
(43.2)

Oil
%
Productio Change
n (Million
Barrels)
276.9
297.0
305.0
304.0
336.2
343.8
344.4
200.5
206.7

6.9
7.3
2.7
0.3
10.6
2.3
0.2
3.1

Crude Oil
%
Exports Chang
e
(Million
Barrels)
216.7
244.0
271.8
269.4
279.8
304.2
292.2
171.9
179.6

(2. 3)
12.6
11.9
(0.9)
3.9
8.7
(3.9)
4.5

Sultanate
of Oman

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

Output Indicators
Items

GDP at Current Market
Prices (OMR million)
Growth rate (%)
Petroleum Sector GDP
(OMR million)
Growth rate (%)
Non-Petroleum Sector
GDP (OMR million)
Growth rate (%)
Notes:
(1)Provisional
(2)Preliminary

2010

2011

2012

2013 ( 1 )

2014 ( 1 )

22,547.6 26,122.0 29,353.3 30,061.3 31,215.2
21.2

15.9

12.4

2.4

3.8

10,388.4 13,888.8 15,350.2 15,205.8 14,840.0
40.7

33.7

10.5

(0.9)

(2.4)

12,633.7 14,111.3 16,029.6 17,198.3 18,691.9
8.6

11.7

13.6

7.3

8.7

End of
March
2014(1)

End of
March
2015(2)

7,589.2 6,508.3
-

(14.2)

3,789.1 2,395.7
-

(36.8)

4,271.7 4,448.9
-

4.1

Sultanate
of Oman

The following table compares GDP at current market prices by economic activity for 2013,
2014 and the end of March 2014 and 2015:
GDP at Current Market Prices

2013(1)

2014 ( 1 )

Total
End of
March
2014(1)

Total
End of
March
2015(2)

(Rial Omani Million)
Economic Activity
1. Total Petroleum Activities
Crude Petroleum
Natural Gas
2. Total Non-Petroleum Activities
(2.1+2.2+2.3)
2.1 Non-Petroleum Industrial Activities
Mining & Quarrying

15,205.8

14,840.0

3,789.1

2,395.7

14,047.0

13,780.1

3,515.9

2,077.9

1,158.8

1,059.9

273.3

317.8

17,198.3

18,691.9

4,271.7

4,448.9

5,496.7

5,471.3

1,142.7

1,115.8

114.7

124.5

29.4

32.4

Sultanate
of Oman

GDP at Current Market Prices
2013(1)

2014 ( 1 )

Total
End of
March
2014(1)

Total
End of
March
2015(2)

(Rial Omani Million)

Manufacturing
Electricity & Water Supply
Construction
2.2 Agriculture & Fishing
2.3 Services Activities
Wholesale & Retail Trade
Restaurants & Hotels
Transport, Storage & Communication
Financial Intermediation
Real Estate Services
Public Administration & Defence
Other Services
3. Financial Intermediation Services Indirectly
Measured
4. Gross Domestic Product at Producers Prices
(1+2-3)
5. Taxes Less Subsidies on Products
6. Gross Domestic Product at Current Market
Prices (4+5)
Notes:
(1)Provisional
(2)Preliminary

3,138.8
346.2
1,897.0
371.2
11,330.4
2,042.3
238.2
1,469.2
1,383.4
1,155.1
2,764.6
2,277.6
(612.6)

2,916.3
376.2
2,054.3
406.1
12,814.5
2,083.6
258.7
1,574.7
1,511.7
1,230.5
3,163.9
2,991.5
(640.3)

692.5
66.0
354.8
91.7
3,037.3
606.3
71.7
544.3
345.9
244.1
596.0
629.0
(152.1)

667.6
72.1
343.8
96.5
3,236.6
619.1
74.8
593.5
384.5
258.6
602.5
703.6
(164.0)

31,791.5

32,891.6

7,908.7

6,680.6

(1,730.2)
30,061.3

(1,676.3)
31,215.2

(319.5)
7,589.2

(172.3)
6,508.3

Sultanate
of Oman

Sultanate
of Oman

Monetary policy and inflation
The exchange rate of the Omani
Rial has been pegged to the
U.S. dollar since 1973 and has
remained
unchanged at U.S.
$2.6008 per Omani Rial since
1986,
aiding
monetary
stability.
The
annual
inflation
rate
measured by movement in the
average consumer price index
for Oman stood at
1.0 per cent. in 2014 compared
to 1.1 per cent. in 2013 and 2.9
per cent. in 2012. The average
inflation rate for January to July
2015 (against the same period
in 2014) was 0.3 per cent. The
recent decrease in inflation is
attributable to lower growth in
nominal
GDP,
thereby
containing
demand,
and
favourable
international

Items of Consumption
2014

Weights 2005

JanJuly
2015/20
14*

2010 2011 2012 2013

%
Change

1 Food, &
Non–Alcoholic
Beverages

23.9 4.5 1.8
03
0.12 (0.2 0.9
5
)
5.96 0.8 (0.1
1
)

4.6 2.2

2.8

7.8 8.4

1.5

0.7 2.7

1.8

26.4
77

0.1

4.5

3.0 2.1

3.78
7

0.3

0.6

1.16 0.1
1
7 Transport
19.1 4.4
67
8 Communication 5.63 (9.7
3
)
9 Recreation &
1.13 (0.8
Culture
5
)
10 Education
1.36 2.0
8
11 Restaurants & 6.09 0.2
Hotels
8
12
Miscellaneous
5.18 4.2
Goods &
5

2 Tobacco
3 Clothing &
Footwear
4 Housing,
Water,
Electricity, Gas
& Other Fuels
5
Furnishings,
Household
Equipment &
Routine
Household
Maintenance
6 Health

1.
7
0.
8
(0.
3)

(0.7)

0.5

1.
0

0.4

2.9 4.3

2.2

5.
5

2.6

0.6

2.0 2.4

1.5

3.8

3.5

2.2 2.7

0.4

5.
1
(0.
5)
0.
1
(0.
1)
5.
8
1.
1

0.4
1.6
4.8
4.3

14.
5

(2.1) (3.8 (2.3
)
)
0.5 2.5 (1.1
)
4.0 17. 4.2
3
2.9 1.2 1.1

16.4 5.5

0.3

0.
0

3.9
(1.5)

0.4
1.9
(0.1)
4.5
0.5

(0.1)

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
merchandise imports:
Tot
Tot
2012 2013
%
%
%
2014 ( 1 )
al
al Chan
Chan
Chan
End
End
ge
ge
ge
Apri April
(201
(201
Janl
2015 3/
4/
Apr
(1)
201
201
201
(2014
(Rial Omani
4
/
Total
20,047
21,69 20,463million)
6,758
4,536 2) 8.2 3) (5.7) (32.9)
7
2015)
Merchandise
Exports
(f.o.b.)
Total Recorded
Merchandise
Note:
Imports ( 2 )

10,811

13,20 11,268 3,715
1

3,605

22.1

(14.6)

(3.0)

(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.
However, other non-oil Omani exports (excluding re-exports) increased by 5.9 per
cent. in 2013 (compared to 2012) and 8.4 per cent. in 2014 (compared to 2013),
reflecting the Government of Oman’s focus on diversifying the economy.

The table below sets out the value of merchandise trade transactions for 2012 to
2014 and April 2014 and 2015:
%
Change
Merchandise
Trade

1. Total Merchandise
Exports (f.o.b.)
Oil (crude oil
and refined oil)
Liquified Natural Gas
Ot he r (NonOil ) Om ani
Exports
Re-Exports
2. Total Recorded
Merchandise Imports ( 2 )
Merchandise Trade
(1-2)

Notes:
Balance

(1) Provisional

201
2

(201

2013
2014 ( 1 )

4/
(Rial Omani
201
Million)

%
End
April
201
4

End
April
2015 ( 1 )

Chang
e Jan-

Apr
(2014/2015)

3)
(5.7)

6,758

4,536

(32.9)

(6.1)

3,935

2,402

(38.9)

(10.6)

529

431

(18.5)

3,807 4,126

8.4

1,260

1,008

(20.0)

3,541 2,944

(16.9)

1,034

694

(32.8)

10,811

13,20 11,26
1
8

(14.6)

3,715

3,605

(3.0)

9,236

8,496 9,196

8.2

3,043

930

(69.4)

20,047

21,69 20,46
7
3

12,352
1,615

12,67 11,90
8
1
1,670 1,493

3,594
2,486

(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,
contributing 32.5 per cent. of total recorded merchandise imports and 21.8 per
cent. of non-oil Omani exports (including re-exports). During 2014, the UAE
traded OMR 1,544.3 million in non-oil Omani exports (including re-exports) and
OMR 3,658.5 in total recorded merchandise imports with Oman. According to
provisional data, in the four months ending 30 April 2015, the UAE traded OMR
488.6 million in non-oil Omani exports (including re-exports) and OMR 1,173.3 in
recorded merchandise imports with Oman.
Current account
According to preliminary data, Oman’s current account surplus decreased to OMR
1,559 million in 2014 (amounting to 5.0 per cent. of GDP (provisional) at current
market prices in 2014) from OMR 2,018 million in 2013 (6.7 per cent. of GDP
(provisional) at current market prices in 2013) and OMR 2,976 million in 2012
(10.1 per cent. of GDP at current market prices). The merchandise trade balance
recorded a surplus of OMR 9,196 million in 2014 compared to 8,496 million in 2013
and 9,236 million in 2012. Net outflows of services, income and current transfers

8
0

Sultanate
of Oman

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.

8
1

The following table shows a breakdown of the Government of Oman’s balance of payments from 2009 to 2014:

Exports (f.o.b.)

10,632

Balance
of
Payments
201
201
201
201 2014
(1)
0
1
2
3
1,881
3,402
2,976
2,018 (Rial
1,559
Omani
7,200
9,841
10,193
9,376 Million)
9,740
14,073
18,107
20,047
21,697 20,463

Imports (f.o.b.)

(6,172)

(6,873)

(8,266)

(9,854)

(1,485)

(1,753)

(2,074)

(2,338)

623

694

896

1,033

1,127

1,179

(2,108)

(2,447)

(2,970)

(3,370)

(3,770)

(3,933)

2,975

5,447

7,767

7,855

6,733

6,986

(1,124)

(1,373)

(1,591)

(1,770)

(1,214)

(1,466)

288

297

282

276

739

467

(1,412)

(1,670)

(1,873)

(2,047)

(1,953)

(1,933)

Items

2009

A. Current Account

(192)

1. Goods

4,460

2. Services
Services (Credit)
Services (Debit)
Balance on Goods & Services

(12,321
)
(2,643)

(10,723
)
(2,754)

(1+2)
3. Income
Income (Credit)
Income (Debit)
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
(5+6)

(1,456)

(1,646)

(2,358)

(2,411)

2,277

(788)

5. Capital Account
6. Financial Account (i+ii+iii)
(i) Foreign Direct
Investment
(ii) Portfolio Investment

(20)

(25)

(56)

(33)

(43)

(50)

(1,436)

(1,621)

(2,302)

(2,378)

2,320

(739)

910

(98)

204

(13)

333

(357)

(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

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)

(b) Liabilities

Note:
(1 ) Preliminary

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.
For the six month period ended 30 June 2015, the Government of Oman recorded total public expenditure of OMR 5.8 billion compared to total public expenditure of

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
expenditure of OMR 4.0 billion for the six month period ended 30 June 2014.

of OMR 3.9 billion compared to total current

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:
5
0
4
5

Per
cent.

4
0
3
5
3
0

34.
7

34.
9

201
0

201
1

40.
8

42.
1

39.
6

201
3

201
4

2
5
2
0
1

201
2
Yea
expenditure r on

5
Total investment
oil and gas production
1
amounted 0to OMR 524.3 million or 40.4 per cent. of total
investment5 expenditure for the six months ended 30 June
0
2015, compared
to 575.4 million or 41.3 per cent. of total
investment expenditure for the same period in 2014.

Sultanate
of Oman

Sultanate
of Oman

Indebtedness
The following table sets forth certain other debt indicators for the Government of Oman for 2009 to 2014:

Items

2009

2012
2010

2011

%
Change
2014/
2013

2013
2014 ( 1 )

(Rial Omani Million)

Stock of Debt
Principal Repayments
Interest Payments
Debt Indicators (2)
Debt to GDP Ratio (%)
Debt Services Ratio (%) ( 3 )

1,044.8
213.9
45.0

1,136.2
169.0
37.4

1,247.2
47.2
38.1

1,360.5
65.8
45.3

1,486.5
84.5
53.6

1,526.3
89.4
50.1

2.7
5.8
(6.5)

5.6
0.8

5.0
0.5

4.8
0.4

4.6
0.4

4.9
0.5

4.8
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.
In 2013, the Government of Oman’s external debt was estimated to be U.S.$1.7 billion: a decrease of 10.5 per cent. from U.S.$1.9 billion in 2012. As at the end of
September 2014, total external debt had decreased by 64.5 per cent. to OMR 603.7 million from the total external debt recorded at the end of December 2013. Oman
also has access to regional development funds. For example, Oman recently received a grant of U.S.$1.75 billion from the Kuwait fund for Arab Economic Development
for the financing of the Al Batina Expressway Project. This grant was made within the framework of the programme of the GCC for the development of member states.
Oman also has access to the Saudi Fund for Developments. The Government of Oman can, in addition to assuming external debt sources, exercise the option of drawing

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.
The table below sets out (i) actual performance for the years ended 2012, 2013 and 2014 against the State General Budgets 2012, 2013
and 2014, respectively; (ii) the State General Budgets for 2015; and (iii) percentage changes between the 2014 and 2015 State General

Sultanate
of Oman

Public Finance
Budget 2012

Budget
2013
2014

Budget
2013

2012

Items

1. Total Revenues(1)
Net Oil Revenues (after transfers to
reserve funds)
Gas Revenues
Other Current Revenues
Capital Revenues
Capital Repayments
2. Total Public Expenditure
(2.1+2.2+2.3)
2.1. Current Expenditure
Defence & National Security
Civil Ministries
Interest Paid on Loans
Gas Production Expenditures
Oil Production Expenditures
2.2. Investment Expenditure
Development Expenditure for Civil
Ministries
Capital Expenditure for Civil Ministries
Oil Production Expenditures
Gas Production Expenditures
2.3. Participation & Other
Expenses/Support
4. Surplus/Deficit
5. Financing(3)
Net Grants Received
Drawing from Reserves
Net loans Received
Development Bonds (Net)
Remaining Surpluses Brought from
Previous Years
Change in Government of Oman
Accounts

%
Budget Change 2015
Budget

2014

(Rial Omani Million)

8,800.0

13,474.5

11,155.0

13,907.6

11,700.0

14,107.5

11,600.0

(0.9)

6,100.0
1,100.0
1,570.0
23.0
7.0

9,831.3
1,583.7
2,033.7
13.0
12.8

8,055.0
1,300.0
1,780.0
15.0
5.0

10,429.5
1,495.3
1,931.0
30.2
21.6

8,150.0
1,500.0
2,000.0
20.0
30.0

10,205.2
1,687.6
1,983.7(2)
15.8
215.2(2)

7,700.0
1,460.0
2,380.0
25.0
35.0

(5.5)
(2.7)
19.0
25.0
16.7

10,000.0
6,445.0
2,585.0
3,475.0
45.0
90.0
250.0
2,710.0

13,555.1
8,772.7
4,742.5
3,503.3
45.3
88.9
392.7
2,886.5

12,855.0
8,125.0
3,555.0
4,070.0
60.0
80.0
360.0
3,145.0

13,990.2
8,822.0
4,494.2
3,848.5
53.6
81.8
343.9
3,120.0

13,500.0
8,664.0
3,700.0
4,487.0
45.0
92.0
340.0
3,228.0

15,171.8
9,606.2
4,210.8
4,762.7
52.9
95.3
484.5
3,584.2

14,100.0
9,576.0
3,800
5,166.0
50.0
210.0
350.0
3,214.0

4.4
10.5
2.7
15.1
11.1
128.3
2.9
(0.4)

1,400.0

1,650.3

1,800.0

1,744.3

1,800.0

2,093.6

1,650.0

(8.3)

25.0
650.0
635.0

58.2
659.9
518.1

30.0
660.0
655.0

60.7
752.7
562.3

38.0
690.0
700.0

72.0
748.1
670.5

44.0
780.0
740.0

15.8
13.0
5.7

845.0
1,895.9
1,585.0
(1,200.0)
(80.6)
(1,700.0)
1,200.0
80.6
1,700.0
(32.7)
0.0
200.0
350.0
200.0
(36.7)
150.0
Notes:
100.0
(1) Total Revenues also includes
150.0
corporate income tax
200.0

2,048.2
(82.6)
82.6
(43.4)
(74.0)
200.0

1,608.0
(1,800.0)
1,800.0
0.0
400.0
200.0
200.0

1,981.4
(1,064.3)
1,064.3
(50.2)
0.0
(60.3)
100.0(2)

1,310.0
(2,500.0)
2,500.0
200.0
700.0
200.0
400.0

(18.5)
-

and custom duties.

(2) Provisional.

700.0

-

1,000.0

-

1,000.0

1,074.8

1,000.0

-

0.0

-

0.0

-

-

-

-

-

(3) Financing also includes net local loans.

Sultanate
of Oman

The State General Budget 2015 and the Eighth Five-Year Development Plan (2011-2015) focus on reducing
diversification and creating new job opportunities, and emphasise the importance of certain goals, namely:

dependence on oil through industry

• 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”).
To achieve this, approved public spending (total public expenditure) in the 2015 Budget has been estimated at OMR 14.1 billion; an increase of 4.4 per
cent. from the approved public spending estimates for 2014. The Government of Oman has approved an estimated budget of 22.8 per cent. of public
expenditure to be allocated to investments expenditure. According to Standard & Poor’s Ratings Services, these approved figures are based on an
assumed Oman crude oil price of U.S.$75 per barrel. The Government of Oman also proposes to issue long-term Islamic sukuk and finance instruments

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.
HIS MAJESTY SULTAN QABOOS BIN
SAID

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
investment bank, through their joint venture Sarasin-Alpen LLC, Oman, have already received approval from
the CMA to market Sukuk and other Islamic capital market products and services to clients in Oman. Central
Bank of Oman operates in accordance with Islamic Shari’ah with a capital base of RO100 million, while Bank
Muscat earmarked RO150 million as capital for Meethaq – its own Islamic banking outlet. Al Ahli Bank has
announced the establishment of its Islamic banking outlet, to be known as Al Hilal.

Sultanate
of Oman

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
forth in the Banking Law and the relevant laws and Royal Decrees.

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
activities through Islamic banks or Islamic windows of conventional banks. As noted above, the CBO issued the Islamic Banking
Framework on 18 December 2012 pursuant to Circular IB 1.

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,
•