Tuesday, January 03, 2006

A "balanced" budget deficit

Which one is it?

03012006.jpg


Or

03012006.jpg

I'll be the first to admit that I wasn't very good at Econ in college but the way I understand it whenever you spend more than what you earn it's called a deficit. And since you can't get something from nothing, the deficit is always financed from somewhere. It could be borrowing, it could be withdrawal from reserves, or selling assets, or whatever. It's ridiculous to call a deficit balanced just because the shortfall is being covered.

The Times of Oman want to have it both ways: praise the government on the first page and then shout DEFICIT on the front of the business page. That's just plain hypocritical.

Fact is unless oil prices collapse in 2006 there will not be a deficit and the government will end the year with a surplus again. I'm disappointed that defence expenditure is rising again and that health and education spending isn't rising fast enough. Nothing's changed. We're still a country that's more concerned with having a big army than with having a better educated population.

16 comments:

Nameless said...

I refuse to even read Times of Oman. Everything about them annoys me. I just found out today from my Boss that whenever they communicated with them, we would write up everything for them in both English and Arabic. It has many advantages of course especially with TOO but it's a disgrace!

Sleepless In Muscat said...

muscati: you make a logical point. and although we can't argue with the government about how they would like to spend their money, in the times we live now - even though we are not at threat - i would think we need to upgrade our army's systems..

illogicist said...

Do you know what percentages of the budget are allocated towards health, defence, education, etc.?
Did you know that the US allocates roughly 50% of its discretionary budget towards (so-called) defence?

Mansur said...

I know its totally off the topic, but Happy New Year to you! :-)

Mansur

Mindazi said...

Why always compare to the US? Do you have any idea how big THEIR deficit is?
Think, who stands to gain from so much defense spending?

Arabian Princess said...

I think its fair to spend on defence this high .. because the budget of defence doesnt only mean spending it on weapens but defence & police are known to be one of the highest recruiters, they provide health services too .. so basicly, the budget you put into that are not 100% for Army purposes!!

muscati said...

1. I am not sure that "defence spending" includes the police as well as the armed forces. I can't recall this ever being clarified by the government.

2. For a country with a limited income like Oman, RO. 1.25 is a very large percentage of the budget. It's true that 1.25 billion is just $3 billion which is probably what the US army spends in a day. Still I wonder, how effective is Oman's army and is this spending really buying us any security?

3. Oman probably has a bigger threat from its exposed coast line than from its neighbors (Saudi Arabia and the UAE). Our coast2line is too big and our defence apparatus are ill-equiped to cover it. Drug traffickers use it to smuggle drugs into neighboring countries through ours. Additionally, ever year thousands of Pakistanis enter the country illegally through our coastline having been dumped at sea by smugglers.

4.Yes the Army is one of the largest employers in Oman, but tell me if we had been spending an extra 200 million rials a year on education for the last ten years and another 100 or 200 million on expanding the economy, creating opportunities for more enterprise and commerce, etc. Can you imagine how many more quality jobs it would have created? By the way, do you have an idea how low the salaries are in the MOD? If it wasn't for the free food and accomodation nobody would want to join the army. Salaries are pathetically low.

5. Like Mindazi said, think who gains from the defence spending. I reckon for every rial spent buying new weapons between 30 and 50% is taken by middle men as commission. Whenever a country starts spending a lot of more money on defence it means some people in that country are getting really really rich from it.

6. I'm really surprised by just how conservative my fellow Omani bloggers are, or is it just that Omanis are that trusting of their government?

KeKo said...

For anyone who actually wants to take this discussion further....
Bear this in mind
Deficit is not all bad..
And surplus is not all good..
And unfortunately! It not as simple as a balanced sheet is better either...

I am not making a point about Oman here, I do not know enough about it to do so....I'm merely making the observation that within Arabic society ( sadly governments included sometimes... discussions regarding Economy are worryingly naive)..

By the way I am intrigued by the discussions of budget priorities and long term impact etc. and I guess for what it’s worth the correct answer depends on where dose Oman see it self in 10 years and more from now…

I should stop now before I bable on and on….
But before I leave you in peace…

Percentage of GDP spent on Military
US-> 3.3%
Oman->11.4%

Finland->2% (not a bad country to use as a yard stick instead of the US, Finland has very limited resources… but actually has the highest quality of life in the world…and an interesting and unique economic philosophy to boot..

illogicist said...

@mindazi: I have a fair idea. Dont remember the exact figure, but it gets larger every year.

@keko: deficits are generally bad, on the long run. Its bad for future generations, even if theres temporary benefits today, it hampers GDP growth tomorrow (thats if we measure how 'good' a country is by its GDP).

@mux (6): Omanis generally are trusting of their govt. :) I think at least when it comes to intentions, they have no reason to be untrusting...



Military spending isnt all bad. A lot of our everyday inventions aparently come from military research and stuff, so theres indirect benefits. But they aren't intentional, so one has to question whether military spending, for that purpose, is really justified.

I know Soul Rebel is kinda into this stuff, I wonder if he has anything interesting to say.

Arabian Princess said...

'6. I'm really surprised by just how conservative my fellow Omani bloggers are, or is it just that Omanis are that trusting of their government?"

People who work in the government could be me & you, I trust you and I trust myself .. so why shouldn't I trust them?

The problem is that there is never a white or black answer when it comes to economy. You might not be seeing the picture globely, they know about the situation more than I or you do. so, I would give them the right to decide what they think is best.

muscati said...

AP, an element of mistrust isn't necessarily a bad thing when it comes to the relationship between citizens and their government. It's part of the checks and balances that should exist between a government and the people it governs. It's not the same as a loss of confidence. And it's definitely not the same as saying that the people in the government shouldn't be trusted.

I think that it would be naive if the citizens in the country simply assume that the people who run the government know better than us simply because they have the big positions and the big responsibilities and we don't, and therefore they know more than us and have a bigger picture than us and will do what's right for us. If that's the case then we wouldn't need an audit apparatus in the government or a parliament/shura council, etc.s

Arabian Princess said...

I dont agree muscati, I dont think there should be an element of "mis-trust" more of an element of constructive criticism.
I am not saying we should blindly agree with everything the government is doing, but at the same time not completly bash EVERYTHING they do as if all what they are trying to do is put citizens down!

muscati said...

Where exactly did I "completly bash EVERYTHING they do as if all what they are trying to do is put citizens down!" ??

We already have a press that bends over backwards to complement every single thing that the government does.

By the way, when I posted this topic on the blog the whole intention was a criticism of the Times of Oman putting two opposite headlines in the same day about the same topic. How can a budget be balanced and a deficit at the same time. I also said that I don't think the government will end the year with a deficit. The only criticism I had was that defence spending was rising again faster than education and health spending.

Arabian Princess said...

I didnt relate what I am saying to you, though you tend to find faults with whatever happens in Oman .. at the end, its your opinion and you are free to do so.

I was talking generaly, explaining the last point from my point of view.

Like you said, this argument went away from what you intended to discuss about .. so I guess I should stop here :)

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