Qatar, which has never posted a budget deficit, is better prepared to the weather the prolonged impact from the over 50% plunge in crude prices in the past year. A well-balanced budget and growing cash reserves will help the country continue with its over $200bn infrastructure upgrade projects, HE the Finance Minister Ali Sherif al-Emadi said on Monday. Qatar will also not slash subsidies for fuel and food in response to low oil and natural gas prices, he said.
Qatar, the world’s top liquefied natural gas exporter, is in the strongest financial position among its Gulf peers. The country would run a budget deficit of only 0.7% of gross domestic product this year, the region’s smallest, a Reuters poll found last month.
Qatar’s policy makers, for sure, are aware of the dangers posed by consistently lower oil prices over a longer period of time. The Ministry of Development Planning and Statistics (MDPS), in its Qatar Economic Outlook for 2015-17 in May, said the “robust” growth in 2015 will taper off to 6.6% in 2016 and 6% in 2017. Qatar could still post a fiscal surplus of 1.4% of GDP in 2015, but show up deficits of 4.9% in 2016 and 3.7% in 2017. But the country’s strong net asset position and good credit standing will enable the deficits to be “comfortably” financed over the projection period.
QNB’s latest Qatar Economic Insight sees Qatar’s real GDP growing to 4.7% this year and 6.4% in both 2016 and 2017 as the government expands its investment programme in the non-hydrocarbon sector. Qatar can withstand lower with its strong macroeconomic fundamentals aided by low fiscal breakeven price, significant savings from the past and low levels of public debt. QNB sees oil prices staying lower for longer, but at a fiscally manageable level for Qatar at $55 for a barrel in 2015-16.
Longer term, however, Qatar’s fiscal cover might start shrinking if oil stays low for long. And the country is prioritising major projects to “get value for money” and do away with wastage. But al-Emadi said there would be would be no cancellations to save money. “We’re not going to scale back. Most of our projects are already at the execution stage so we’re going to continue with those; we’ve already put a public plan of what we’re actually going to do for the next 10 years,” he said.
To be sure, it’s not crisis time for the well-managed Qatari economy. But consistently lower oil and gas prices could create pressure on economic planning in Qatar, which has an oil-linked pricing mechanism for its LNG supplies. The country’s monetary policy, to an extent, is also linked to its currency peg to the US dollar.
Make no mistake; Qatar’s policymakers are sticking with fiscal discipline to ensure optimum utilisation of its resources. Despite all the economic headwinds blowing nearby and across the globe, “it’s going be business as usual” in Qatar for the development projects.