Oman's Economy
The performance of Oman's economy was satisfactory, especially when viewed against the international economic environment. Omanisation, economic diversification and privatization remained the key elements of economic policy supported by efforts to attract foreign and domestic investment into a range of economic sectors. The Government fiscal position continued to remain good in 2002 and the expected budget deficit is RO 100 million as compared to RO 380 million budgeted for 2002. The reduced deficit is due to increase in average oil prices at USD 23.58 per barrel as against an estimate of USD 18 per barrel budgeted in 2002. The year 2002 witnessed a decline in oil production.

Oman's budget for the year 2003 is pragmatic and growth oriented. Total revenues are estimated at RO 2,600 million showing an increase of over 4 percent against RO 2,490 million budgeted for the year 2002. Total expenditures are expected to increase by 4.5% to RO 3,000 million compared with RO 2,870 million budgeted in 2002. The overall budget deficit for 2003 is expected to be RO 400 million. Oil revenues are expected to account for about 71% of the total revenues in 2003 compared to 73% budgeted in 2002. Thus the non-oil sector revenues are improving due to the positive measures taken by the Government. Oil revenue is estimated on the basis of an average price of USD 20 per barrel. The average oil production is expected to be 763,000 barrels per day. Two new power projects at Al Ghubra and Rusayl are expected to go on stream. Privatization of various projects is also in progress and the Government is planning to divest its stake in certain premium public limited companies.

The balanced fiscal and monetary policies have helped the nation to record negative inflation. The Muscat Securities Market (MSM) realized good gains and the index rose from 152.08 as of December 31, 2001 to 191.86 as of end of December 2002, thereby registering an increase of 26%. Investor interest has been spurred on by an improvement in the performance of local companies and government reforms. The introduction of new provisions in the Capital Market law, new regulatory functions to combat insider trading and introduction of corporate governance in all listed companies has added to investors' confidence.

In spite of the challenging economic conditions prevalent in Oman as in the rest of the world, Bank Muscat has performed exceptionally well in the year 2002. The businesses that the Bank acquired in 2001/2002 have proved to be good investment  decisions and have strengthened its position as the largest bank in Oman and also established Bank Muscat as a name to reckon with in the region.

Financial Sector
The financial system in Oman can be broadly classified into the following categories: banking institutions comprising the Central Bank of Oman, commercial banks and specialized credit institutions. The Central Bank of Oman is the apex institution of the banking system. There are also several exchange houses dealing in exchange of money and issue of drafts, non-banking credit institutions comprising leasing companies, hire purchase and finance companies, non-monetary institutions without credit functions like insurance companies, pension funds, mutual funds and investment companies and Muscat Securities Market which facilitates issue of securities to the public and trading in securities listed on the market.

The Banking sector in Oman witnessed a challenging period in 2001 mainly on account of exposures to a major trading group, which collapsed during the year 2001. In addition, the weak stock market pushed down the investment valuations. However, with improved liquidity conditions and a steep decline in the interest rates, the local banks in Oman have reported improved results in 2002 as compared to 2001. The number of licensed banks operating in Oman as of September 30, 2002 was 18, of which 6 were local banks, 9 were foreign banks and 3 were specialized banks. Bank Muscat commands a market share of over 34% in terms of total assets, 37% in terms of total credit, 34% in terms of customer deposits and over 30% in terms of savings deposits as per the latest statistics available.

Opportunities and Threats
Bank Muscat has the ability to offer a range of financial products to its customers, through its wide branch network and delivery channels backed by state of the art technology. Being the largest bank in Oman, the Bank has opportunities to act as Lead  Manager for large privatization projects in Oman and also to improve its fee-based income through asset management, private banking and corporate advisory services, retail assets and credit cards, enhanced treasury related activities and overseas branches within the GCC states and outside.

Threats posed to the banking industry are the volatility of oil prices, further economic slowdown, consolidation in the banking industry, increased competition in the wake of Oman's entry into WTO and slow growth in non-oil sector. There could be a slowdown in the economies of the Middle East  countries and other parts of the world in view of the war with Iraq.