After enjoying years of record-breaking surpluses, Qatar will likely see budget deficits this year and beyond as government spending looks set to outpace revenues, a new report has found.
That means the nation will face more pressure to reduce spending on projects and programs unrelated to the 2022 World Cup.
Qatar is not alone in that government revenues around the Gulf have taken a hit from falling oil prices, which influence the price of natural gas.
But the recent slide comes at an inopportune time, as Qatar is spending billions of riyals on transportation, infrastructure, real estate and stadium projects in preparation for the international football tournament.
According to Qatar National Bank (QNB), the nation is expected to run a deficit equivalent to 2.2 percent of GDP this year amid low oil prices and rising capital spending. Using QNB’s economic stats, that works out to roughly US$3.91 billion.
By 2017, that’s expected to rise to 3.7 percent of GDP, or $8.51 billion.
Qatar last ran a deficit in 1999-2000, according to records kept by Qatar Central Bank.
Significant turnaround
By global and regional standards, Qatar’s projected deficit figures are modest. Within the GCC, for example, Oman’s deficit is expected to hit 8 percent of GDP this year, while economists predict that Bahrain will run a deficit equivalent to 9.3 percent of GDP.
Many economists believe that Qatar’s low debt levels and large financial reserves will help it easily weather a period of low oil prices.
Meanwhile, the QNB report also forecasts that the country’s economy will pick up steam in 2015.
Real GDP growth will accelerate from 6.5 percent last year to 7 percent in 2015 primarily due to construction spending on large infrastructure and development projects.
Still, running a deficit is nevertheless a significant turnaround for the Gulf state, which has run surpluses for several years in large part by making conservative estimates of the price of oil.
This created a financial cushion for the government and allowed it to absorb cost overruns.
In 2013-14, for example, government expenditures were more than 9 percent – or QR21 billion ($5.78 billion) – higher than budgeted, according to the Qatar Central Bank.
No waste
A budget deficit will likely increase pressure on officials to manage state funds more tightly – a message that’s already been delivered by Qatar’s Emir.
In an address to Qatar’s Advisory (Shura) Council in November, Sheikh Tamim bin Hamad Al Thani said:
“Waste, extravagance, mishandling of state funds, lack of respect for the budget, reliance on the availability of money to cover up mistakes are all behaviors that must be disposed of, whether oil prices are high or low.
Reasonable spending is an economic matter … (and is) also related to the type of society that we want and the type of individual that we rear in the State of Qatar.”
The Emir’s comments followed a warning from the International Monetary Fund that Qatar needed to operate more efficiently to prevent cost-overruns and construction delays.
Recently, it was reported that Qatar was shelving plans for the multibillion-dollar Sharq Crossing amid fears that its scheduled 2021 completion date being too close to the start of the World Cup.
Additionally, there are concerns that the country’s construction sector is overheating due to the number of highways, rail lines and real estate projects concurrently being built that’s leading to rising prices for raw materials.
These factors are believed to have prompted officials to reschedule some 15 percent of its development projects last year, according to a Reuters story at the time.
Elsewhere, there are signs that the country is reigning in spending on cultural programs.
While no figures have officially been disclosed, the budgets of Qatar Museums and the Doha Film Institute, among other organizations, are believed to have been drastically reduced.
Thoughts?
I remember the last time a budget deficit was forecast. Everyone got all panicked. And then what happened?
“Qatar had forecast a deficit of QR5.8 billion in its 2009-2010 budget despite a slight fall in planned spending for the year. The deficit was assumed on the basis of a sharp fall in revenue from around QR103.3 billion in 2008-2009 to QR88.7 billion in 2009-2010 mainly because of a steep drop in crude prices.
But actual revenue shot up to their highest level of around QR165.6 billion in 2009-2010 due to a large increase in non-oil earnings.
Expenditure also climbed to a record high of QR108 billion from around QR99.2 billion in the previous fiscal year.
“Qatar has been able to post consecutive fiscal surpluses for the past five years due to the continuous expansion of the oil and gas sector, and diversification efforts…the surplus has grown by around 32.9 per cent annually during that period…the 2009-2010 surplus is expected to climb to about 13.3 per cent of GDP compared to 10.3 per cent in the previous fiscal year,” said a study by the Kuwaiti-based Global Investment House.”
http://www.emirates247.com/news/qatar-to-record-high-fiscal-surplus-in-2010-2011-2010-12-29-1.335328
2022 is not immune, they’ve akrwsy cut the number of stadiums and a switch to winter takes out other costs. Plus the government doesn’t want to see huge waste that happens on a lot of these vanity projects
In addition to QM and DFI, I have heard QF also has seen its budget slashed by 40%. But that’s Twitter gossip. Not sure whether it is true or baseless.
That is true
Good to hear that. Even though I like what QF is doing in terms of education and scientific research, it is clear this is costing the country billions of riyals each year, which are not all justified (Sidra, National Library, etc.).
Did you just say a National Library was not justified?
Yes.
On what grounds? You don’t think it’s important to keep and care for the books and printed materials that hold a country’s history and heritage? You don’t think access to literature and information from all over the world is important for people?
I do not have a problem with national libraries in general, but with this one in particular. I hate to see billions of riyals spent on building a library in the middle of nowhere that nobody will go to except the students of the Education City, who most probably have also their university libraries so I am not even sure they would go there. That building was very expensive to build and maintain, and has to employ thousands of staff. And the ROI? Almost zero.
So yes, if there will be cuts, this library has to be among the targeted entities.
some good points – although when the metro stops right out the front of the QNL it won’t be in the middle of nowhere. And you’re right, a national library should ideally be part of a reading culture with a network of local libraries etc. I hope they keep the Dar al-Kutub functioning in some way given it’s down town location.
It would be hilarious if they stopped working on the metro lol.
i would love the Emir’s statement of waste and extravagance to have some teeth – the wastage of funds in the procurement strategy seems to be endemic in Qatar
I don’t believe their will be a deficit. The state run very conservative oil price assumptions for its 2015 and 2016 budgets.
However I’d love to see a deficit. It should refocus the attention of the PM on where and how each tiyal is spent ..
My suggestion stop building any more “architectural wonders” at QF and no more $300+ Million paintings for QM
At least the paintings are famous works by famous artists. It’s the public “art” that perplexes me.
I’m clearly a philistine because I cannot comprehend how Richard Serra and Damien Hirst were paid millions and millions and millions – the former for that ‘thing’ behind the MIA, as well as 4 steel plates standing on their edges in the middle of the desert, and the latter on those embryonic sculptures outside Sidra, with a rumored price tag of $20 million.
Perhaps too much money and not enough concern about what was being financed
I agree. We need more projects of public utility like the Metro and better traffic systems than fancy projects. Control of extravagant lifestyles by people is also good for longterm benefits
I hope the railways project is not impacted by any deficit or austerity measures. That, in addition to QU and the Education City, are some of the things that will always be functioning and delivering even in the next century. These are very long term projects and even if they are costly they will always be at the heart of the economy.
LOL….when you only have oil and “shopping malls” to play with….life looks dim.
As long as you have an economy that isn’t based on competative business, you’re never going to see an improvement in standards/efficiency. It doesn’t matter how badly many businesses are run here, they can survive. It’s the polar opposite of somewhere like the UK, where competative business is so extreme that only the cororate giants can survive. Qatar needs to find the balance while it has time. It may have hundreds of years worth of Gas, but it has maybe only decades left of customers.
no extravagance….I rest my case
not extravagant enough compared to big brother dubai.
Perhaps a second QDC branch within the West Bay/Pearl area might bring in some additional revenue to the government’s coffers. If people didn’t have to venture to the other side of town to stock up they would probably spend more there.
It all comes down to accountability.
Gauguin painting for sale !
I applaud any measure of fiscal responsibility here. The emir is being responsible and a long-term thinker.