DOHA: Qatar’s budget balance is seen swinging to a healthy surplus. The country’s budget is expected to improve further and be close to broad balance in 2018 before returning to a vigorous surplus in 2019, according to QNB analysts.
On the expenditure side, spending is expected to show modest overall year-on-year growth in 2018 as restraint in current spending continues and, as Capex spending on large infrastructure projects and the 2022 World Cup starts to flatten out. 2019’s more relaxed climate should then allow for some pick up in current spending and increased transfers, such as to Qatar Investment Authority (QIA) or debt repayments, as the surplus grows.
“On the revenue side, growth rates will be lifted by higher hydrocarbon revenues as the full benefit of the doubling of crude prices from June 2016’s level is felt and the partial lifting of Opec output caps spurs the modest output gains embedded in our GDP forecast. The expected introduction of VAT in 2019 will boost revenues by around 1¼ percent of GDP, helping diversify and reduce volatility in government revenues,” QNB noted in its “Qatar Economic Insight”, yesterday.
Qatar’s GDP is forecast to improve to 2.6 percent in 2018, from 2017’s 1.6 percent out-turn. For 2019 as a whole, QNB forecasts non-hydrocarbon GDP growth of 5.3 percent, leaving overall GDP growth at 3.2 percent. From 2019 onwards, the decision to increase LNG output by 30 percent by 2024 will increasingly drive Qatar’s next development phase.
The country’s fiscal deficit narrowed to 1.6 percent of GDP in 2017 from 4.7 percent in 2016. The fall reflected government expenditure restraints in the face of slowing revenue growth. Qatar’s Ministry of Finance data shows that total expenditure slipped by 2 percent in 2017 versus 2016. Importantly, capital spending on major projects was sustained with growth of 2.6 percent last year. Revenues meanwhile grew by 9.0 percent in 2017 helped by the increase in hydrocarbon prices.
Qatar’s current account surplus is expected to rise further to close to 9 percent of GDP in 2018; an increase of around 5 percent of GDP. Buoyant exports will remain the key driver. With oil prices expected to average $72/b and LNG demand growth in Asia remaining vibrant, hydrocarbon exports should sustain strong growth.
On the import side, the expected pick-up in non-hydrocarbon GDP growth should see moderate growth resume reflecting the twin drivers of steady population increase and continued investment spending. Government policies to promote self-sufficiency and food security will however help cap overall import growth. For 2019, the current account surplus is expected to narrow back towards 7 percent of GDP as slightly lower oil prices crimp export revenues and moderate import growth continues.
The current account returned to a surplus of 3.8 percent of GDP in 2017 on the back of higher energy prices. Exports saw robust growth of 17.5 percent reflecting the continued recovery in the oil price and booming LNG demand, particularly from China. Imports, meanwhile, were broadly flat for the year as a whole. The economic blockade by some of Qatar’s neighbours produced a temporary disruption to trade but imports quickly bounced back to above pre-blockade levels as trade flows have been successfully re-routed. Imports from Turkey in particular have jumped and continue to show strong growth so far in 2018.
On the hydrocarbon side, modest growth of 0.2 percent is anticipated, which would end four years of declines. The lifting of Opec production cuts should modestly boost crude oil production, while the end of maintenance work and temporary shutdowns should start to spur a recovery in LNG output through the year.
A further pick up of 0.7 percent in hydrocarbon output is then expected in 2019. Non-hydrocarbon GDP is expected to gain by 5.0 percent in 2018. Continued infrastructure spending as the government focuses on completing major projects in key sectors will ensure that construction remains the backbone of the non-hydrocarbon sector with forecast growth of 15.5 percent. Higher oil prices will also allow for some positive multiplier effects on domestic demand.
September 20, 2018 TO September 20, 2018