DOHA: Qatar’s current account balance is expected to remain in surplus in 2015, but modest deficits seem likely in 2016 and 2017.
The updated Qatar Economic Outlook (QEO) including those showing lower than anticipated production of crude oil and condensates as well as the drop in oil prices suggest that the fiscal surplus in 2015 may contract to 1.7 percent of GDP, down from 13 percent in 2014.
In 2016, it is foreseen that the overall fiscal balance will register its first deficit in 15 years, which the QEO estimates at about 4.8 percent of GDP. This estimate assumes that the government successfully pares recurrent spending levels and caps growth of capital spending below previously programmed levels; that there are effective cost reductions in the hydrocarbon sector that support transfers to the budget; and that there is additional non-oil and gas revenue accruing to the budget.
However, these measures are more than offset by the squeeze on revenue inflicted by lower oil prices and the consequent reduction in investment income received by government.
Investment income — largely the financial surplus of Qatar Petroleum — accrues to the budget with a lag and in 2015 budget revenue was shielded to some extent by the higher oil prices of 2014. However, this buffer is removed in 2016, and the full impact of lower oil prices in 2015 will be felt on income from investments. The fiscal deficit is forecast to remain in 2017, though expected reductions in expenditure and a mild recovery in hydrocarbon prices should narrow the deficit from 2016.
The import demand might see some reduction as projects’ capital-equipment needs are scaled down, but it should stay supported by demand for materials and by consumption demand of a larger population. With the retreat in the current account surplus, capital outflows will also be pared back.
The risks to the economic outlook stem mainly from oil prices, which have dropped dramatically over the year.
Their prognosis remains highly uncertain, according to the QEO Update.
The MDPS document has also noted that if oil prices rise more quickly than forecast, realised nominal income growth, as well as fiscal and external balances, will see better outcomes.
But if they fall short of projections, income growth will be restrained, fiscal balances could deteriorate more sharply and larger external-payment deficits might occur.
The forecast of this Outlook relies on World Bank forecasts for regional LNG prices, which are on the high side against others’ forecasts. This is particularly stark for Japanese LNG prices, which are a major swing factor for Qatar’s composite realised gas prices.
An expected drop of 46 percent in the price of hydrocarbon basket will register directly in lower income from upstream production and in reduced resources flowing to the state. Nominal GDP growth may shrink marginally in 2016 if, as forecast, margins on gas decline.
An expected increase in hydrocarbon prices in 2017 should allow a resumption of growth of nominal GDP.
