Qatar's budget balance to 'turn positive' again in 2017

Qatar’s budget balance will “turn positive” as early as 2017, says a senior BMI researcher, who asserts that the country will face “only one year” of budget deficit.

In an interview with Gulf Times, BMI Research’s Emerging Markets analyst Olivier Najar said he expected the Qatari budget balance to turn positive again in 2017.

This, he said, was because the Qatari government did not need “as high prices” as some other GCC states (for example Saudi Arabia) to balance its books.

“With our forecast for hydrocarbon prices to increase gradually, Qatar's fiscal outlook will improve, without Doha having to implement wide austerity measures,” Najar points out.

In BMI’s view, the Qatari government would cover its 2016 deficit by “a mix” of domestic and foreign borrowing, as well as using some of its foreign currency reserves.

“This will impact the country's sovereign risk very little, and Doha will not cut infrastructure spending for the 2022 FIFA World Cup.”

The Fitch Group company expects the Qatari government to continue with spending commitments on infrastructure projects for the 2022 FIFA World Cup, despite recording its first deficit in more than a decade.

This will not impact its sovereign risk outlook, given that the budget balance will turn back to positive from 20 17 on the back of rising oil and gas prices.

According to Najar, “borrowing to cover the budget deficit” was not an “imprudent move” in the case of Qatar.

Qatar will only face one year of budget deficit, and the borrowing needs will be relatively low (projected $13bn deficit in the 2016 budget).

“We expect the country's public debt to peak in 2016 at close to 28% of GDP ($74bn), which is very much manageable for the government. The latter held an estimated $260bn through its sovereign wealth fund in 2015, more than three times the amount of the debt,” Najar points out.

“Overall, we therefore do not see the country's sovereign profile being at risk,” he said.

 

HE the Minister of Finance Ali Sherif al-Emadi had announced in December 2015 that the budget would sustain spending in key sectors such as health, education, infrastructure and transport, with special focus on railways and other projects tied to the 2022 World Cup.

“We believe that this strategy is sustainable for Doha, and that it will not significantly impact the country's sovereign outlook,” BMI said.

The Fitch Group company believes the Qatari government would continue its strategy of borrowing domestically and externally to cover its public deficit.

As of end February (the latest data available with BMI at the time of writing), deposits of the government in the domestic banking sector had fallen by 9.6% y-o-y, credit from the Qatari banks to the government was growing by 15% y-o-y (compared to a decrease of 4% in 2015), and external debt of the government had risen by 25% y-o-y.

“We believe that these three trends will continue over the coming quarters, as borrowing remains the government's main tool for covering its deficit,” BMI said.

Peaking at 28% of GDP ($74bn) in 2016, the Qatari government's debt will remain very relatively low, particularly when compared to the estimated $260bn held by the country's sovereign wealth fund in 2015, BMI noted.