amd oman outlook 2015 (dec'14)

8/9/2019 AMD Oman Outlook 2015 (Dec'14)

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ASSET MANAGEMENT

OMAN OUTLOOK2015

savings and retirement planning solutions, simplified

pre-budget


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85% ofGovernmentRevenues arehydro-carbon

based.

ie: oil pricedependant

Oman produces ~340 million barrels of oil, per annum. ~88% of which is exported.(estimates of AMD as on Dec.14)

$1 (USD) price movement in the price of a barrel of oil, impacts Omansannual revenue by~OMR 100 million.

$60 (USD) price for a barrel of oil, impacts Omansannual revenue negatively by~OMR 4 billion. (relative to 2014 revenue levels)

GOVERNMENT REVENUES

OMR / million 2013actual% of

Revenue 2014actual(10M)

% of

Revenue

Net Oil Revenues 10,430 75% 8,643 75%

Gas Revenues 1,495 11% 1,166 10%

Other Current Revenues 1,931 14% 1,692 15%

Capital Revenues 30 0% 0 0%

Capital Repayments 22 0% 0 0%

TOTAL 13,908 11,502

GOVERNMENT REVENUE

Source: CBO Annual Report 2013, CBO Publications, ahlibank AMD

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GOVERNMENT REVENUES

Other revenues constitute 14% of TotalGovernment revenues.

Investment income along with Corporateincome tax are the two main constituentsaccounting for almost 50% of other revenuesand rakes in ~OMR 1 billion in absolute terms.

The proposals of revenue enhancement byMajlis al Shura primarily centres in this

segment of Government revenues.

OMR 240 million of enhancement is expectedto materialise, as the expectation is for thefollowing to be adopted:

Fair tax on LNG exports OMR 196

millionRevision in telecom royalty OMR 31million10% levy on extracted mineral sales OMR 13 million

Corporate taxable profits of OMR 3.6 billion perannum along with Custom duties, Telecom,

Port and Airport revenues are all susceptible tooil price risk given the overall economicdependency to hydro-carbon revenues.

OMR / million 2013actual% of Other

Revenues

% of Total

Revenues

OTHER REVENUES 1,931 14%

943 49% 7%

Income Tax (Corporate) 395 20% 3%

Technical/Training Projects 155 8% 1%

Licence Fees & Others 177 9% 1%

Communication services licenses -

Custom Duties 217 11% 2%

988 51% 7%

Water Revenues 63 3% 0%

Postal Revenues 0 0% 0%

Airport Revenues 34 2% 0%

Port Revenues 0 0% 0%

Public Communication Services Toll 88 5% 1%Surplus from Public Authorities 10 1% 0%

Rent from Government Real Estate 12 1% 0%

Income from Government Investments 556 29% 4%

Interest on Bank Deposits and Lending 28 1% 0%

Others 196 10% 1%

Taxes and Fees

Non-tax/fee revenues


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GOVERNMENT EXPENDITURE

OMR / million 2013actual% of

Expenditure2014actual(10M)

% of

Expenditure

Current Expenses 8,822 63% 6,416

Defence & National Security 4,494 32% 2,736 24%Civil Ministries 3,849 28% 3,274 28%

Oil Production Expenditures 344 2% 306 3%

Gas Production Expenditures 82 1% 66 1%

Interest Paid on Loans 54 0% 34 0%

Investment 3,120 22% 2,455

Civil Ministries (Development) 1,744 12% 1,419 12%

Civil Ministries (Capital) 61 0% 0%

Oil Production 753 5% 604 5%

Gas Production 562 4% 432 4%

Participation & Others Expenses 2,048 15% 1,341 12%

Un-apportioned Expenses 0% 1,300 11%

TOTAL 13,990 11,512

GOVERNMENT EXPENDITURE

The proposals for expenserationalisation by Majlis alShura, centres aroundreducing Defence spendand Oil & Gas productionexpenditures.

The current expenditureschedules are synonymouswith the expansionarypolicies of State.

If expense rationalisation were to be an option to be pursued by the state to counter fallingrevenues, a prudent estimate of quantum will range between OMR 1.2 1.8 billion (10% declinerelative to current levels)


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GOVERNMENT EXPENDITUREOMR / million 2013actual

% of Current

Expenses

% of Govt.

Expenditure

Civil Ministries (Current expenses) 3,849 44% 28%

2,472 28% 18%

Salaries & Wages 1,103 13%Allowances 943 11%

Other remuneration 214 2%

Contribution to Pension Fund 212 2%

814 9% 6%

Purchase of Goods 212 11%

Purchase of Services 506 26%

Government Services 96 5%

562 6% 4%

2014 Budget 4,487

2014-10M actual 3,274

Goods & Services

Salaries, Wages, Allowances & Others

Subsidies & Transfers

OMR / million 2013actual % of Govt.Expenditure

Domestic, Regional and International Interests 452 3%

Subsidy (Soft Loans) - Private Sector & Housing 31 0%

Support to Electricity Sector 321 2%

Support to Basic Goods 28 0%

Operational support 99 1%

Support to Petroleum Products 1,119 8%

TOTAL 2,048 15%

2014 Budget 1,608

2014-10M actual 1,341

Government Participation and Other Expenses

Subsidies and support specifically targetingutilities and energy segments can be expectedto be moderated.

18% of Revenues which areallocated towards Salaries,Wages, Allowances & Others isexpected to increase by 3-5% for2015.


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DEFECIT FINANCING AVENUES

AVENUE - I Surplus brought from previous year:2015 can expect to have a brought forward surplus of ~OMR 1 billion

from 2014.

AVENUE - II Development Bonds (GDB):Current outstanding GDB stock amounts to OMR 561 million. (Oct.14)

Cumulative Government Debt (including GDB, Loans and other liabilities)amounts to ~ OMR 2.5 billion.(Dec.14)

Debt / GDP = 8.1%(GDP forecasted at OMR 31 billion, IME 2014 estimates)

Debt Service Ratio = 3.9%(Computed based on cumulative debt servicing charge / 2014

estimated total government revenue)

GDB Investor Profile

Banks 70.0%

Financial Institutions 5.0%

Pension Funds 24.5%

Government entities 0.3%

Individuals 0.2%

Interest Payment ~ OMR 50 million(Annual interest charge, estimated for 2014)

continued

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AVENUE - II Development Bonds (GDB):

For each OMR 100 million tranche of new GDB issuance; the impact on the state finances will be as

follows: (assuming weighted average tenor of 5 years, at 3.5% p.a. / GDP threshold at OMR 31 billion)

Debt / GDP : will rise by 0.3% (ie: 3% for OMR 1 billion)

Interest Payment: charge will increase by OMR 3.5 million, per annum (OMR 35 million foradditional borrowing of OMR 1 billion)

Cumulative BanksBalance Sheet:

INVESTOR POOL

Pension & Social Security Funds of Oman; rake in close to OMR 400 million per annum ascontribution. (AMD 2014 estimates)

Central Bank of Oman, foreign reserves are estimated to be ~ OMR 6.5 billion

CASH / CBO

DEPOSIT

DUE FROM

BANKSCREDIT SECURITIES

FIXED

ASSETS

OTHER

ASSETS

TOTAL

ASSETS

LENDING

RATIO

1,894.4 2,125.0 16,588.0 2,995.1 190.7 659.5 24,452.7 77.3%CBO

BORROWING

DUE TO

BANKSDEPOSITS

CAPITAL /

RESERVESPROVISIONS

OTHER

LIABILITIES

TOTAL

LIABILITIESCAR

0.0 1,517.8 17,148.6 2,892.6 593.0 2,300.7 24,452.7 16.5%

ASSETS

LIABILITIES


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AVENUE - III Drawing from reserves:


Omansstrategic reserves are estimated average ~ OMR 25 billion.

AVENUE - IV Government Loans:

Bilateral loans from entities such as IDB, ADB and regional states are an option.

AVENUE - V Government Grants:

Regional governments (specifically) are known to bestow grants in times of need, for neighbourlystates.

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OUTLOOK 2015

In an environment where the Government is financing deficit budgets and trying to maintain statusquo on a broad expansionary fiscal policy; the Banking system will be called upon along with keystrategic institutions such as the Reserve Funds and Pension Funds to act as linchpins.

The Banking sector trends to emerge will be the bell weatherfor the broader economic activity.

Construction 9.8%

Services 8.5%

Manufacturing 8.1%

Transport and Communication 6.6%

Electricity, gas and water 5.1%

Import Trade 4.5%Financial Institutions 4.4%

Wholesale & Retail Trade 4.1%

Mining and Quarrying 3.9%

All Others 3.0%

Non-Resident lending 1.1%

Export Trade 0.4%

Agriculture and allied activities 0.3%

Government 0.1%

Personal Loans 40.1%

100.0%

Sectoral break-up of commercial bank credit Government spending initiatives will ultimatelydetermine the credit expansion within the broadereconomy.

The expectation is for credit expansion to near highsingle digit.

Lending rates can be expected to inch higher, whilstdeposit rates may lag pace, relative to the former.

The above can be expected to enhance NIMs and also feerevenues of the Banks.

Source: CBO Annual Report 2013, CBO Publications, ahlibank AMD10

The exact impact on other sectors ofthe economy will be elaborated postbudget (details) release, scheduled for5thJan 2015.

Preliminary view is for the economy to be able pull-

through with the existing development initiatives giventhe ability to finance budget for 2015.

We also view the current levels of oil price as un-sustainable. Thus, we expect prices to reverse toequilibrium ($80) over the course of 2015.

amd oman outlook 2015 (dec'14)

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