With Qatar reaffirming its commitment to continue investing in infrastructure and other major projects, the country’s economic growth promises to be on the upward trajectory, amid challenges posed by lower energy prices.
A recent government data showed Qatar’s economy is estimated to have grown 4.8% year-on-year (y-o-y) in the second quarter (Q2) of this year, mainly on strong double-digit expansion, especially in construction, trade and finance sectors.
Spending on major projects is the foundation of economic growth in Qatar, and this has continued apace, official estimates by the Ministry of Development Planning and Statistics (MDPS) show.
Qatar has been able to diversify its economy away from oil and gas, which has helped the country safeguard its economy from the repercussions of the declining oil prices, HE the Minister of Economy and Commerce, Sheikh Ahmed bin Jassim bin Mohamed al-Thani said recently.
Qatar’s real GDP growth was much above the average global growth of 2.5%. Qatar’s gross national savings, equivalent to 56% of the country’s GDP, is the highest in the world, he said addressing the “Global investment forum” in New York.
Qatar’s National Vision 2030 (QNV 2030) aims to transform the country into a knowledge-based economy, for which Qatar has used its significant hydrocarbon surpluses to undertake a major programme of infrastructure investments.
Project spending ahead of the FIFA World Cup in 2022 is attracting a large influx of expatriate workers. Together, investment spending and population growth provide a major boost to domestic demand, leading to double-digit growth in the non-hydrocarbon sector, according to researchers at the country’s and Mena’s largest bank QNB.
The lower oil prices, however, pose major challenges to the national economy.
Undoubtedly, hydrocarbons still play a key role in the Qatari economy, despite the government’s continued efforts at diversifying the economy away from oil and gas. These accounted for nearly half of GDP in 2014 and a significant share of the government’s revenue and exports.
Liquefied natural gas, which is currently Qatar’s main export commodity, is price-indexed to crude oil. Therefore, the oil price movement is significant for Qatar.
Oil prices have fallen from their peak of $115 a barrel in mid-June 2014 to $48.2 on October 2.
But because of its strong macro-economic fundamentals, Qatar is well-positioned to weather a low price regime.
The government has repeatedly expressed its commitment to continue the investment spending programme and its efforts to diversify the economy, QNB points out and adds it should be able to deliver on this commitment for three main reasons.
First, the fiscal breakeven oil price for Qatar is low at an estimated $60.7 a barrel in 2015, meaning that any fiscal deficit is likely to be small.
Second, Qatar has accumulated significant savings in recent years, which has placed it in a strong position to continue financing its ambitious investment spending programme and fiscal deficits. Some of these savings were kept in international reserves, while others have been invested abroad through the QIA.
Third, public debt is low at 30% of GDP in 2014 making it easy to raise debt on international markets at favourable interest rates.