Economic studies
Qatar

Qatar

Population 2.4 million
GDP 68940 US$
A4
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

   2014 2015 2016(f) 2017(f)
GDP growth (%) 4.0 3.6 2.7 3.4
Inflation (yearly average) (%) 3.4 1.8 2.7 2.6
Budget balance (% GDP) 15.3 5.6 -4.1 -3.1
Current account balance (% GDP) 24.0 8.4 6.4 9.1
Public debt (% GDP) 32.3 34.9 47.6 50.2

 

(e) Estimate (f) Forecast

STRENGTHS

  • Third largest gas reserves in the world and world’s leading exporter of liquefied natural gas (LNG)
  • Diversification on the right track (infrastructures, industry, finance, tourism)
  • Position as net external creditor, thanks to size of financial assets held abroad (mainly through the Qatar Investment Authority sovereign fund)
  • Stability of regime of new Emir Tamim bin Hamad Al Thani

WEAKNESSES

  • Dependence on oil and gas sector and uncertainties on movements in natural gas prices mainly because of the arrival of non-conventional gas supplies
  • Business climate could be improved
  • Dependence on foreign labour
  • Risk of production overcapacity
  • Geopolitical challenges in regional terms

RISK ASSESSMENT

A dynamic economy

Economy in Qatar is expected to remain resilient in 2017, despite a disappointing GDP growth of 2.7% in the first quarter (QoQ), after a 4.1% growth in the last quarter of 2016. Inflation should level off in 2017. However, prices are decreasing for housing, recreation and restaurants, which could foster consumption. Nevertheless, the introduction of a uniform 5% VAT rate across all GCC countries, approved on May, 3rd 2017, is expected to increase prices after being implemented in 2018. The oil and gas sectors, suffering from the fall in energy prices, were operating in the red in 2016, but they should help support growth in 2017 with the start of production at the Barzan facility (increase liquid gas production by 21%). The non-oil and gas sectors were dynamic in 2016, and they will continue to be, driven by construction (+11.7% QoQ in the first quarter of 2017) and the services sectors. Construction sector remains one of the leading beneficiaries of the Qatari government’s investment policy for the FIFA World Cup 2022. Although a moratorium has been imposed on new projects, already scheduled investments are substantial and estimated at the equivalent of almost USD 180 billion. The services sector (financial services, property and telecommunications) should see strong growth in 2017.

However, a prolongation of the diplomatic crisis between the country and its neighbours could make it more difficult to import materials needed for construction projects of the World Cup, resulting in project delays; tourism (nearly 10% of GDP) could suffer from the suspension of flights; the trade sector could be affected, as some Saudi Arabian and United Arab Emirates commercial banks suspended their trades. However, Qatar has found substitutes with imports from Turkey, and it has enough resources ($335 billion of assets in its sovereign wealth fund) to compensate macroeconomics shocks.

 

Emergence of twin deficits

The public balance dropped into its first deficit in 2016 after years of surplus. Budget incomes, dependent both on oil and gas revenues (more than 40% of total budget revenues) and transfers from parapublic entities related to the hydrocarbons sector, were doubly hit by the fall in the price per barrel. Despite its very substantial assets, the country is planning on financing the public deficit both with indebtedness on the international markets, as borrowing in the domestic market is problematic, and with an increase in the prices of public services. The public debt could continue to increase significantly.

Qatari banks remain well capitalized and profitable, despite the impact of declining oil and gas revenues now starting to affect their health. The expected tightening in US monetary policy and the amount of capital committed to the country’s infrastructure projects pose a high risk in terms of banks’ liquidity levels, through pressure on deposits.

External accounts have felt the full impact of the fall in oil and gas prices that represent the largest proportion of the country’s exports. The current account surplus should improve in 2017, thanks to a recovery in exports which grew by 15.6% YoY in the first quarter of 2017. However, the income balance is expected to continue in deficit but at a lower level. The slowdown in the outward flow of Qataris investments abroad and the increase in the gross external debt will result in a reduction in the financial account deficit.

 

Diplomatic crisis

Led by the Emir Tamim bin Hamad Al Thani, Qatar was a leading player in the Arab Spring, in particular through its financial support for the Muslim Brotherhood. Nevertheless, this activist positioning in the region has undermined its image on the regional stage. On June 5th, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt, subsequently followed by Yemen, Libya and the Maldives, have cut their diplomatic ties with Qatar, accusing it of funding and supporting terrorism, and of proximity to Iran. Land, sea and air borders have been closed, which has negatively affected imports, in particular food imports. Turkey has endorsed Qatar, and Kuwait and the United States are acting as mediators to resolve the diplomatic crisis.

 

Last update: June 2017

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