By Santhosh V Perumal

Business Reporter

Qatar’s foreign exchange cover is likely to remain “strong”, equivalent to about six months of total imports, according to the Ministry of Development Planning and Statistics (MDP&S).

The ministry asserted this in its recently released Qatar Economic Outlook 2013-14 update, which, however, found the country’s external current account surplus to drift down in 2013 and 2014, but remain sizeable at 26.6% and 22.7% of GDP (gross domestic product) in 2013 and 2014.

“An expected decline in hydrocarbon export revenue, coupled with higher imports on the back of stronger domestic demand, will narrow the surplus,” it said.

As the bulk of these surpluses are re-cycled in overseas investments funded by export earnings, the overall surplus on the balance of payments will be much smaller than the current account surplus and is likely to fall to $5.5bn in 2013 and to $1.5bn in 2014, it said.

In the first half of 2013, Qatar posted a trade surplus of QR200.3bn, equivalent to 54.7% of nominal GDP, the outlook said.

In contrast to the sharp import growth in 2011 and H1 2012, the Qatar Central Bank’s estimate of imports fell in the second half of 2012 and further by 9.4% in H1 2013, the update said.

“The decline may reflect a strong base effect as a consequence of sizeable imports of machinery and materials in 2011 and 2012, although it could be a reflection of short-run or seasonal influences that will dissipate,” it said.

During H1 2013, export revenues rose 4.4%, mainly on oil and gas as non-hydrocarbon exports are still very small, accounting for just 12.2% of the total, the outlook said, adding a large trade surplus underpinned a substantial current account surplus in H1 2013.

Deficits on income and services accounts and large outward remittances (19.3% of nominal GDP), yielded a “stout” current account surplus of 35.4%, according to the report.

On the real effective exchange rate (REER), which traditionally provides a measure of competitiveness for a country’s output in the global market place, the update found Qatar’s REER stood 3.1% lower in June 2013 compared with the 2012 period, according to MDP&S estimates.

“This was largely because the US dollar (to which the riyal is pegged) lost value against the currencies of Qatar’s major trading partners,” it said.

Highlighting that global oil consumption outpaced production in the third quarter of 2013, it said these developments were not foreseen in the QEO June and have led to an upward revision of expected average oil prices for the year.

Further, renewed tensions in the Middle East and short-term supply disruptions have raised risk premiums and therefore pushed up the Brent spot oil prices to over $105 per barrel since July 2013.

The US Energy Information Administration, in its November short-term outlook, predicted that this trend will begin to soften towards the end of 2013, the QEO noted.

A trajectory of slowing growth in emerging economies (notably China), coupled with a robust supply outlook from non-Opec oil exporters, has in fact led most forecasters to lower their projections for oil prices in 2014.

The October 2013 World Economic Outlook (WEO) saw crude oil to average $104.5 in 2013 and to fall by 3% to $101.3 in 2014.

The WEO also revised down its forecast for average natural gas prices - a weighted average of Japanese, US and European prices - by 1.4% relative to the WEO forecast of April 2013. It comes amid an expanding supply of gas in the US, and lower anticipated demand in emerging economies.

Natural gas continues to be sold at prices that are below the energy equivalent parity with oil - in effect, at a discount to oil, it said, finding that in recent months the discount has widened.

“In energy equivalent terms, the oil to natural gas price ratio is over 30, as of September 2013, higher than that in June QEO,” the update said, adding the energy equivalent price ratio is about 6.

No globally integrated market for natural gas yet exists, and the natural gas market remains highly segmented along regional lines, it said.

Lower prices are seen in the US, where most gas is sold on the spot market, and are highest in Japan, where gas is sold under long-term contracts linked to oil.