Q1 2016 Qatar Market Report: Economic Overview
Despite substantial government expenditure in recent years to help reduce the reliance on the hydrocarbon sector, and the recent fall in oil prices, the hydrocarbon sector still accounted for approximately 32% of total GDP in Q4 of 2015.
The price of crude oil has fluctuated between $38 and $42 per barrel throughout March, having hit a 2016 low of $30 per barrel in mid-January. The extent of the drop in oil prices has resulted in cuts to various government budgets for 2016 as a fiscal deficit is forecast for the first time in 15 years.
Projected expenditure for 2016 is QAR202.5bn, a fall of QAR15.9bn from previous fiscal year. Projected revenues for 2016 are QAR150.6bn, down from QAR225.7bn estimated for 2015. The projections for 2016 are based on the assumption that the average oil price for the year is $48 per barrel.
The Standard & Poor’s (S&P) credit ratings agency recently confirmed Qatar’s AA rating and stable outlook. S&P noted that Qatar’s macroeconomic fundamentals remain solid despite the challenges the state is facing. The international credit rating agency warned however, that the government’s balance sheet will deteriorate as long as oil prices remain subdued.
The Ministry of Development Planning and Statistics confirmed in December 2015 that the country’s economy was expanding at a lower rate than previously forecast. In June 2015 the Ministry had predicted GDP growth at 7.3% for the year, however, these forecasts were revised down to 3.7% by year end. Due to the performance of the Hydrocarbon sector, GDP growth is driven exclusively by the non-oil and gas sectors, which grew by 7.4% in Q4 2015.
The governments of Qatar and other oil-producing nations such as Saudi Arabia and Russia agreed on 16 February to freeze production at January’s levels of output, in an effort to halt the decline in oil prices. Whether the efforts of the various governments will be a success remains uncertain. Following the removal of international sanctions, Iran reiterated its pledge to increase oil production. Existing oil-producing nations also pumped oil at record levels in January, which suggests that a fall in supply will not be immediate.
Despite the fall in oil & gas revenue, major infrastructural projects are progressing as planned, maintaining economic growth. The current cost of projects that are underway is QAR261bn, which excludes projects in the energy and private sectors.
In anticipation of a budget deficit in 2016 the Finance Minister confirmed that Qatar will finance any shortcomings through debt instruments in local and international finance markets, rather than tapping into its national savings, or selling assets.
The inflation rate in Qatar fell to 1.9% in 2015 , however it is anticipated that this will increase again, driven by the construction sector, as major projects get underway between 2016 and 2019 in preparation for the World Cup in 2022.
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