Qatar: Fiscal Reforms Aimed at Mitigating Bearish Oil Trend’s Burden

To alleviate the pressure of declining oil prices on its economy, the Qatari government has been taking measures to cut its expenditures. For instance, it has reduced the number of planned stadiums for the 2022 World Cup from 12 to 8, it decreased planned spending on building healthcare facilities by two-thirds, and it decreased the number of employed people in the public sector. Moreover, the country has foreshadowed plans to privatize some state-run firms.

  

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Qatar posted a 3.7% y-o-y growth in real GDP during 2015, compared to a higher growth of 4% in 2014, as bearish oil trend continues to impact the economy. GDP growth was driven by the 7.8% y-o-y growth in the non-hydrocarbon sector, while the hydrocarbon sector narrowed by 0.2%. GDP growth is expected to stand at 3.3% in 2016 and 3.9% in 2017, driven by investment spending and population growth.

Quarterly consumer price reached 107.60 in Q2 2016, with inflation standing at 2.8%. The major sub-indices “Housing, water, electricity, & gas”, “Recreation and culture”, and “Transport” added 5 %, 7.4%, and 2.1%, respectively.

On the suppliers’ side, the Producer Price Index (PPI), measuring the average selling prices domestic producers receive for their output, plummeted by 25.3% y-o-y in Q2 2016 to 46.7 points. The PPI was significantly affected by the prices of crude oil and natural gas, where the price of the Qatari Land Crude Oil (QLCO) and that of the Qatari Marine Crude Oil (QMCO) plunged 24.1% and 24.7% y-o-y to $47.8/barrel and $46.2/barrel, respectively, end of June 2016.

Therefore, the “Mining” group, which represents 72.7% of the PPI, fell by 30.1% compared to the same period of 2015. The PPI “Manufacturing” subcomponent also showed a yearly decrease of 15.4%, as prices of most of the plastic and other production items are linked to oil prices. Meanwhile “Electricity and water” sub-index went down by 5.6% compared to Q2 2015.

Qatar’s trade balance narrowed 56.7% y-o-y to a surplus of $100.78B in H1 of 2016, as a result of decreasing exports and increasing imports. Declining oil prices drove down the largest component of total exports, hydrocarbons, by 40.08%, resulting in a 33.8% y-o-y plunge in exports to $26.97B by June 2016. On the other hand, imports increased by 2.2% y-o-y to $16.19B, however motor cars and other passenger vehicles, the top imported commodities, declined 25.82%.

On the fiscal front, Qatar recorded a $3.52B deficit in Q1 2016, compared to a surplus of $3.24B in Q1 2015. This came as a result of a 59.62% plunge in revenues to $7.83B, while expenditure dropped 29.71% y-o-y to $11.36B by March 2016. Taking advantage of investors’ hunger for yield, the Gulf state has raised $9 billion in the debt markets, the region’s biggest ever bond offering.

Looking at the monetary sector, total assets at commercial banks went up 5.18% since end of 2015 to $315.99B, end of H1 2016. Private sector credit grew 2.56% to $116.99B, while that of the public sector inched up 10.20% since year start to $70.95B by June. Total deposits broadened 5.13% to $184.58B, due to the 55.55% and 21.23% increase in non-resident and resident private sector deposits. Meanwhile, public sector deposits decreased 4.58% since year-start.

Qatar stocks declined as tightening bank liquidity pushed financial stocks lower and some investors cashed in gains before an upgrade to emerging-market status with FTSE Russell. The Doha Stock Market Index (DSMI) ticked down by 4.73% q/q to 9,885.22 points end of June. Trade during Q2 of 2016 occurred at a lower volume of 469.68M shares worth $4.32B, compared to 615.85M shares worth $5.59B in Q1 2015.

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