As the global economy grapples with its worst financial disaster in decades, countries across the world are hoping that countercyclical spending will prevent or damp economic slowdowns or recessions.

The sultanate of Oman is the most recent addition to the swelling ranks of Keynesians. This month, the government pledged to increase spending by 11 per cent to OR6.4bn ($16.7bn).

While this will give Oman a budget deficit of about OR810m, or about 5 per cent of gross domestic product, policymakers are wary of the effect the credit crunch has had on oil prices and the country’s economy.

Oman’s recent budget forecasts that real economic growth will slow from an estimated 10 per cent last year to 1 per cent in 2009. However, some economists say that Oman may be underestimating the resilience of its economy – at least in the short term.

The immediate causes of pessimism are clear. The tourism industry – an important driver for the service sector in the picturesque country – faces a tough year.

Oman is also one of the smallest oil exporters of the six Gulf Co-operation Council countries, exporting 500,000 barrels a day in 2008 compared with neighbouring Saudi Arabia’s 7.5m barrels, according to the International Monetary Fund.

The recent price tumble forced the government to revise down its budgeted price per barrel to $45 for 2009 from an estimated break-even of $77 in 2008 – among the highest in the region. Oman’s oil is also relatively trickier – and costlier – to extract.

“The [economic] slowdown will be palpable,” says Simon Williams, HSBC’s regional chief economist. “I think Oman can weather the storm but 2009 will feel like a recession compared to the past few years of growth.”

However, economists see reasons for some cheer. The sultanate is not a member of Opec and therefore does not have to join in on the cartel’s swingeing production cuts. It has also invested heavily in liquefied natural gas production, diversifying its revenue base.

Its banking sector has also fared better than most. While access to credit is falling – which will hurt Omani companies and financial institutions – the sultanate is experiencing a “credit squeeze rather than a credit crunch”, says Mr Williams.

Nonetheless, the central bank of Oman has cut interest rates and reserve requirements, injected dollars into the banking system and raised the permitted loan-to-deposit ratio to engineer a softer slowdown in credit growth. The government plans a OR150m fund to stabilise the stock market.

Oman, while hardly as rich as many of its Gulf neighbours, has also saved prudently in recent years, which will give it a robust budgetary “cushion” in the next few years, says Tristan Cooper, a senior analyst at Moody’s.

Moody’s estimates that Oman has net foreign assets in excess of 50 per cent of GDP.

“The budget is going to come under pressure . . .&... they can afford to run deficits for several years before they run into problems,” says Mr Cooper. “From a ratings perspective we derive comfort from their fiscal cushion.”

HSBC expects Oman’s economy to grow 3 per cent in real terms in 2009, above the regional average says Mr Williams. Standard Chartered recently lowered its forecast for Omani growth in 2009 to 2 per cent from 2.5 per cent, but still said it would perform better than most of its neighbours.

Overall economic growth rates may not be the best performance measure in the Gulf, say economists, who often prefer to measure non-oil sector economic growth as volatile oil prices may skew measures of real activity in the “core” economy.

Yet even non-oil growth should remain firm at above 4 per cent, according to EFG-Hermes’ economics team, which will help to counterbalance a contraction in the oil sector. The investment bank predicts that the overall economy will expand 2.8 per cent this year, above the government’s forecast.

However, in the longer run, should the crisis persist and oil prices remain low, “Oman has a lower ability to run countercyclical policies than most other Gulf countries”, EFG-Hermes cautions.