Browsing 'budget' News

Photo for illustrative purposes only.

Mohammed Zuber Shaikh/Flickr

Photo for illustrative purposes only.

With reporting from Riham Sheble

Despite government forecasts of three years of budget deficits, Qatar’s economy could return to the black in 2017, a new report has said.

This is because global oil prices are expected to rise next year, the latest economic analysis from BMI Research said.

However, Qatar won’t be returning to the heady days of double-digit surpluses. From 2005 to 2014, returns on average hovered around 21.2 percent.

Qatar National Convention Center

Peter Kovessy / Doha News

Photo for illustrative purposes only.

But over the next few years, they will be far more “modest” as the country continues to spend heavily to prepare for the 2022 World Cup, BMI said.

It added that Qatar’s annual remittance outflow of more than $10 billion a year from its majority expat population will put the brakes on any significant surplus growth, at least in the short term.

In an earlier report, published in April this year, BMI said it expected Qatar to run a surplus of around 0.7 percent of GDP – or approximately US$1.5 billion – next year.

This is contrary to Qatar’s own June forecast, in which is warned of budget deficits from this year to 2018.

Improving oil prices

The country’s economy relies heavily on income from oil and gas exports, as well as petrochemical products.

So when global oil prices dropped to a low of $45/barrel at the beginning of this year, Qatar suffered its first budget deficit in 18 years, equivalent to around 3 percent of the country’s GDP, BMI reports.

Photo for illustrative purposes only.

RasGas

Photo for illustrative purposes only.

Qatar’s authorities have taken the potential impact seriously.

Last December, the government announced it was slashing spending across all sectors amid a projected QR46.5 billion deficit for 2016.

However, since then, oil prices have somewhat recovered and are expected to hit $55/barrel next year, BMI said.

“We believe that the worst is over for Qatar’s trade balance,” it added.

The belief was echoed in a statement made last month by Qatar’s minister of energy and industry Dr. Mohammad bin Saleh Al Sada, who said “The difficult phase is over,” referring to the oil price crisis.

Growth inhibitors

Despite the good news, there will be no return to “giant” current account surpluses, BMI said.

Qatar’s population has continued to grow, on average 8.3 percent year-on-year, as more international workers move to help build the numerous, ambitious infrastructure projects ahead of 2022.

For illustrative purposes only

Reem Saad / Doha News

For illustrative purposes only

Many of these expats send significant portions of their wages back to their home countries each month.

In 2015, international remittances accounted for $12.2 billion – an 8.6 percent increase on remittances in 2014.

“We do not expect remittances outflows to ease in 2016 and beyond,” the report added.

Added to that, the country is spending an increasing amount of money bringing in raw materials to build the stadiums, roads and Doha Metro infrastructure.

Doha Metro construction

Qatar Rail

Doha Metro construction

The cost of this will continue to suppress any more significant surpluses for the coming years.

The lower revenues could also have an impact on Qatar’s spending on international investments, BMI warned.

However, this is unlikely to be significant, as Qatar’s government carries on with economic diversification plans to reduce its heavy reliance on oil and gas.

“Lower revenues will result in the Qatar Investment Authority (QIA) adopting a more conservative investment approach. However, as the government seeks to diversify its revenues away from hydrocarbon revenues, investment revenue is expected to play a major role, which will reinforce Qatar’s position as a major global financial investor,” the report said.

Tourism, transport growth

Despite the continued pressures on oil and gas, some areas of Qatar’s economy have grown in recent years, according to a recent government report.

Income from the country’s transport and tourism sectors has significantly risen in the past five years, according to the Ministry of Economy and Commerce (MEC).

In 2015, the amount of money raised by “services exports,” its services to non-residents, rose to QR54.6 billion – up from just QR11 billion in 2010.

This was primarily driven by massive development of the country’s developing tourism industry.

Photo for illustrative purposes only.

ITU Pictures/Flickr

Photo for illustrative purposes only.

While income from tourists stood at just QR2.1billion in 2010, this increased more than nine times to QR18.3 billion in 2015, the MEC said.

The growth was attributed to spending by visitors on hotels, restaurants, local transport and shopping.

Meanwhile, income from transport increased four times over the same period. It went from QR6.4 billion in 2010 to QR27 billion five years later.

The growth in this field, which includes air cargo and passengers, is mostly accounted for the expansion of Qatar Airways, the ministry report added.

Thoughts?

Woqod fuel station

QNA

Woqod fuel station

Qatar’s government stands to bring in an extra QR740 million in fuel revenues each year thanks to higher petrol prices, according to Doha News calculations.

That means that though the rising cost of petrol may only be putting residents out a few riyals a week, the windfall turns out to be a significant one for the Gulf state.

Using June’s petrol prices and 2015 sales figures, calculations show that Woqod stands to collect more than QR742.65 million (US$204 million) in revenue this year.

That’s nearly enough to buy two Airbus A320neo planes at list prices, to use one example.

An A320neo test flight

Airbus

An A320neo test flight

Locally, that amount of money would also cover half of Qatar’s annual bill for its share of the operating costs of the six US universities at Education City.

However, the sum only puts a small dent in Qatar’s budget deficit, representing 1.6 percent of the QR46.5 billion shortfall that Qatar projected it would run this year.

Still, experts have hailed the higher prices as a sign that Qatar is putting its financial house in order.

Rethinking subsidies

Qatar has historically heavily subsidized the price of petrol for motorists here.

However, late last year, government leaders began warning residents that the country needed to rethink its generous policies in the face of lower global oil prices, which have drastically eroded the state’s revenues.

Emir Sheikh Tamim bin Hamad Al Thani

QNA

Emir Sheikh Tamim bin Hamad Al Thani

In early November, Emir Sheikh Tamim bin Hamad Al Thani said the government could no longer “provide for everything.”

That message was followed a week later by an address from Qatar’s Minister of Development Planning and Statistics, who said there is an “urgent” need for the country to seek new revenue sources and rethink its subsidy programs.

Then in January, petrol prices went up 30 to 35 percent overnight.

And in April, the Ministry of Energy and Industry said it would set a new retail price for petrol each month to reflect changes in global oil markets.

By the numbers

This month, motorists are paying QR1.2/L for premium (regular) – up from QR0.85/L at the start of the year – and QR1.3/L for super, which is up from QR1 before prices started to rise.

The country consumed 975 million liters of regular gasoline and 1.34 billion liters of super gasoline last year, according to Woqod’s 2015 annual report.

Qatar stands to bring in an additional QR742.65 million annually by charging more for petrol.

Peter Kovessy / Doha News

Qatar stands to bring in an additional QR742.65 million annually by charging more for petrol.

Multiplying these volumes by the change in prices suggests that Woqod stands to collect an additional QR742.65 million annually.

The actual figure is likely to be much higher, given Qatar’s rising population and the company’s growth.

Woqod said its gasoline sales last year were 9 percent higher than in 2014.

Thoughts?

Emiri Diwan

Omar Chatriwala / Doha News

Emiri Diwan

Qatar’s government could resume running budget surpluses as early as next year thanks to an expected rise in oil prices, according to one economic researcher.

BMI’s Olivier Najar told the Gulf Times this week that higher global prices for hydrocarbons, which provide the bulk of Qatar’s government revenues, could help the country’s budget balance “turn positive (next year) … without Doha having to implement wide austerity measures.”

Qatar’s government predicted that it will run a budget deficit of $12.8 million in 2016, its first shortfall in 15 years. It has also forecast another deficit in 2017 despite cost-cutting efforts.

However, a BMI report published in April predicted Qatar would run a narrow surplus of 0.7 percent of GDP next year, or roughly US$1.5 billion.

The same report said that Qatar would run a deficit this year of 2.3 percent of GDP, or approximately $4.3 billion – much smaller than what the government itself has forecast.

Qatar has attempted to reduce government spending by curtailing the budgets of state-funded organizations, which in turn have laid off thousands of expats.

The government has also reduced consumer subsidies on electricity, water and petrol.

However, these efforts still leave a large portion of government spending – namely infrastructure-related preparations for the 2022 World Cup and public-sector salaries of nationals – untouched, ratings firm Moody’s said this week.

Thoughts?