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For Qatari residents: Do you prefer a summer or winter World Cup 2022?

Being on the surplus side

Written by  Author |   Mon, 29 December 2014 09:09

Qatar’s GDP is projected to grow in the range of 6.8% to 7.8% during 2014-16 and the non-hydrocarbon share to GDP is set to hit 57.2% by 2016, according to a Qatar National Bank report. This positive economic development is driven by large investments in infrastructure, services and transport sectors.
The QNB report states that the economy has started a new diversification phase as large investment spending in the non-hydrocarbon sector accelerated growth to 6.5% in 2013 (6.1% in 2012) while growth in the hydrocarbon sector slowed.

The country’s current account surplus is projected to narrow over the medium-term on lower oil prices.. Qatar’s international reserves are projected to remain adequate and most of the oil and gas exports are destined to Asia. Qatar’s fiscal policy aims to maintain budget surplus, while undertaking large infrastructure investments. The budget surplus is likely to moderate over the medium term on stable hydrocarbon revenues and higher infrastructure spending.

Construction and services largest contributors to GDP

The QNB report indicates that the largest contributors to real non-hydrocarbon GDP growth were government services, financial services and construction. Government Services have expanded robustly on higher demand from the growing population and investment projects, contributing 2.9 percentage points (pps) to non-hydrocarbon growth in 2013. Financial services (2. pps) and trade, restaurants and hotels (1.7pps) benefited from the rapid population growth as well. Construction activity (2.7pps) expanded rapidly thanks to the implementation of infrastructure projects.

Investment contributes by 28.2%

The contribution of investment to nominal GDP rose to 28.2% in Q1 2014 from 26.8% a year earlier, according to a new MDPS data published recently. This implies that investment spending is driving economic growth as the major projects are implemented. Meanwhile, private consumption has a comparatively small share of GDP by international comparison, but is growing supported by the increasing population. The share of government is broadly equivalent to that of private consumption as government spending accounts for a large share of economic activity. High domestic demand from consumption and investment is driving strong growth in imports of goods and services. These imports, however, only partly offset the very large export share, QNB reveals.

Investment spending attracts a new wave of expatriate workers

Investment spending is creating an estimated 120,000 new jobs each year, leading to double-digit population growth. Population grew an average 10.9% in 2013 and continued at the same pace for the first half of 2014, reaching m in June.
Expatriates account for an estimated 94.1% of the labor force. The share of females in the population inched up to 26.3% as the share of female workers moving to Qatar increased as well as white-collar workers arrived with their families.

Account surpluses continue to finance large investments abroad

The QNB report reveals that the current account has recorded a healthy surplus in 2013 (30.9% of GDP), owing to robust hydrocarbon prices and rising exports of oil, gas and related products, such a fuels, petrochemicals and fertilizers. This more than offset the import bill, which has expanded on strong investment demand, QNB underlines. A portion of hydrocarbon revenue is invested abroad through the Qatar Investment Authority (QIA), leading to a capital and financial account deficit.
As a result of the growing stock of foreign assets, investment income from abroad has risen to around 3% of GDP in 2013, up from 1% in 2009, which is reducing the dependence on hydrocarbon exports. The overall balance of payments has recorded a healthy surplus in 2013. As a result, international reserves have increased to months of import cover (USD42.1bn) at end-2013, well above the IMF-recommended level of three months of import cover for fixed exchange rates.

Capital spending drives investment and economic growth

According to QNB analysts, budgeted capital spending has grown by an estimated 21.4% in 2013/14, up from 12.3% in 2012/13. In the first half of 2013, the government has held back on moving forward with major infrastructure investment projects. Since then, capital spending has been ramped up and a number of contracts have been awarded. Construction has progressed rapidly, particularly in the infrastructure, real estate and transport sectors. For example, the tunneling work and construction of stations for Qatar Rail’s metro project is well underway, with an expected completion date for all five metro lines by 2019.

Fastest asset growth in the GCC

QNB Group analysis noted that Qatar had the fastest asset growth in the GCC region in 2013, which is likely to continue through 2016. Growth in assets, loans, deposits and profits has been strong with lending to the government and population growth as key drivers. Deposit growth is outpacing loan growth as government borrowing has recently slowed.

The loan-to-deposit ratio has fallen in 2013 on lower government borrowing and improved liquidity, which has moderated returns on assets and equity; banks are well capitalized and the share of non-performing loans remains below 2 percent. Qatar’s banking sector is highly concentrated with the top five banks accounting for 82.2 percent of banking sector assets.

With 47.5 percent market share by assets, QNB ranks top, followed by CBQ, QIB, Doha Bank and Masraf Al Rayan. QIB is the largest Islamic lender with a market share of 8 percent and an return on equity (ROE) of 9.9 percent at end-2013. The top banks profitability metrics are strong with low non-performing loans. ROE have moderated in 2013 as the government has reduced its reliance on banks to finance ongoing projects. CBQ experienced high non-performing loans relative to its domestic peers at end-2013 owing to its international expansion in the Turkish market.

Decreasing oil prices no problem for Qatar

According to IMF projections, GCC countries could face a $175 billion hole in their fiscal surpluses from falling oil prices. The IMF believes that lower oil prices could knock nearly 1 percentage point off economic growth rates in GCC countries, putting new fiscal pressure on policymakers in the region to reduce spending plans.

IMF sources say that if oil prices hit $75 per barrel for a prolonged period it would knock 8 basis points off the GDP of GCC countries, and could reduce the aggregate fiscal surplus for GCC government from a current projected $275bn to around $100bn. If the oil price remains low, it would increase pressure on all regional budgets to cut public spending and curb subsidies on energy, utilities and other areas where consumers’ costs are partly met by the state.

Qatar remains an exception. Qatar may well end the financial year on a budget surplus despite the slump in global oil price by about 25% since June. Qatar has already earned an average $104.8 a barrel in the first six months of the current fiscal up to September, against the conservative oil price assumption of $65/b in the budget for 2014-15, official data show. And the Qatari crude has fetched $105.59 a barrel as average price from January to September.

Even at the conservative oil price assumption of $65 a barrel, Qatar had projected a budget surplus of QR7.3bn ($2billion) in the current financial year. At $107 a barrel, Saudi-based Samba Financial Group estimated that Qatar’s budget surplus might exceed $24bn, or 11.2% of the country’s GDP (gross domestic product), in 2014-15.

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October / 10 / 2014
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