Qatar’s government expects to run a budget deficit for at least three years as low natural gas and oil prices weigh on its revenues, the Ministry of Development Planning and Statistics said.
In a long-term report on the Qatari economy, the ministry forecast a fiscal deficit of 7.8 per cent of gross domestic product (GDP) this year, which would be the first deficit in 15 years and bigger than the deficit of 4.8 per cent predicted for 2016 in the Ministry’s last report published in December.
The deficit is expected to total 7.9 per cent of GDP next year before shrinking to 4.2 per cent in 2018, the ministry said.
Qatar, the world’s biggest liquefied natural gas exporter, is one of the richest of the Gulf states but like its neighbours, it has been pushed into austerity measures this year in an effort to stabilise its finances. More austerity will be needed to achieve the Ministry’s projections, the report said.
“This estimate assumes that the government pares recurrent spending and caps growth of capital spending below previously programmed levels; that there are effective cost reductions in the hydrocarbon sector, which support transfers to the budget; and additional non-oil and gas revenues accrue to the budget.”
Some of the projected improvement in the fiscal balance depends on a hoped-for rise in energy prices; the Ministry assumed the average crude oil price would climb to $48.91 a barrel in 2018 from $45.49 in 2017 and $37.88 this year.
The Ministry predicted Qatar’s economy would grow 3.9 per cent this year, down from a previous 4.3 per cent forecast. It expects growth of 3.8 per cent next year and 3.2 per cent in 2018.
Liquidity in the Qatari banking system has tightened and money market rates have risen because of reduced inflows of gas and oil money. The Ministry said the Central Bank might take several steps to reduce pressure on liquidity.
It could cut official interest rates, continue to suspend domestic Treasury bond issuance while resuming its suspension of Treasury bill issues, or adopt unconventional measures used by central banks in other countries such as direct purchases of commercial bonds and extraordinary loans to, or equity injections in, individual banks, the ministry said without specifying which steps were likely to be chosen.
In early 2014, the Central Bank announced a new loan-to-deposit requirement for banks of 100 percent by the end of 2017. The deposit side of the ratio includes only customer deposits and not long-term wholesale funds, which have recently been the primary source of funding for banks.
The banks are still negotiating with regulators to change the loan-to-deposit formula to include long-term wholesale funds, and the deadline for compliance may be postponed until the end of 2018 because of the liquidity issues at Qatari banks, the Ministry said.
The above article, with input by Reuters news agency, originally appeared in Gulf Business
Online . . .
Qatar’s forthcoming budget deficit was predictable, according to financial analysts, and might have been minimised if the emirate had chosen a more circumspect approach to spending over the last few years. The need for real diversification has not yet been fully embraced by the government in Doha, which probably believed the seemingly bottomless well of petrochemicals dollars would never run dry.
Qatar has fully rejoiced in its position as one of the wealthiest countries in the world in a host of ostentatious programmes, some of which might be said to have been politically unwise.
Its neighbours in the Gulf region will be closely monitoring exactly how it deals with its altered financial situation; many believe austerity will not be an option willingly embarked upon by the somewhat indulged Qatari nationals. Time will tell. There is no disgrace in stumbling, it is how quickly equilibrium can be restored, that will determine how Qatar is ultimately measured.