To boost its private sector and ease the pressure on the fiscal balance caused by low oil prices, Qatar targets to implement a public-private partnership (PPP) law, by the end of 2016. Qatar has previously used PPP in the utility and oil and gas sectors in 2015, but the new law would make PPP easier to operate and expand their use into other sectors.
Despite a considerable reduction in oil and gas revenues, Qatar is still posting a positive growth rate, due to continued spending on infrastructure and tourism projects. Qatar’s real GDP growth for the fourth quarter (Q4) of 2015, reached 4% year-on-year (y-o-y), driven by the expansion of the non-hydrocarbon sector. The Real Gross Value Added (GVA) of the non-mining and quarrying sector, with a 51.28% share of GDP, grew by 7.4%, pushed up by the developments in construction, social services, and financial services. Meanwhile, real GVA of the mining and quarrying sector, with a 48.72% share of GDP, showed a 0.7% yearly rise
Consumer prices remained on the rise, with yearly inflation standing at 3.3% in March 2016. The major sub-indices “Housing, water, electricity, & gas”, “Recreation and culture”, and “Transport” added 5.4%, 11.2%, and 1.5%, respectively.
On the suppliers’ side, the Producer Price Index (PPI), measuring the average selling prices domestic producers receive for their output, plunged by 37.5% y-o-y in Q4 2015 to 52.7 points. The PPI was significantly affected by the prices of crude oil and natural gas during 2015. The price of the Qatari Land Crude Oil (QLCO) and that of the Qatari Marine Crude Oil (QMCO) shed 44.4% and 46.9% y-o-y to $42.4/barrel and $39.5/barrel, respectively, end of December 2015. Therefore, the “Mining” group, which represents 72.7% of the PPI, fell by 41.7% compared to the same period of 2014. The PPI “Manufacturing” subcomponent also showed yearly decrease of 27.8%, while “Electricity and water” sub-index went down by 3% compared to Q4 2014.
Qatar’s trade balance narrowed 56.06% y-o-y to a surplus of $3.94B in the first 2 months of 2016, as a result of decreasing exports and increasing imports. Declining oil prices drove down the largest component of total exports, hydrocarbons, by 40.73%, resulting in a 33.18% y-o-y plunge in exports to $9.42B by February 2016. On the other hand, imports increased by 6.87% y-o-y to $5.48B, where motor cars and other passenger vehicles were the top imported commodities, inching up slightly by 0.36%.
On the fiscal front, Qatar is projected to record the first fiscal deficit in 15 years, of $12.8B in 2016, with the expected oil price at an average of $48/barrel. Revenues are forecasted to reach $42.12B, while expenditures are expected to be $54.68B, provoking the government to issue local and international debt rather than drawing down its reserves. The government borrowed $5.5B 5Y loans from domestic and international banks in December, and is expected to issue sovereign sukuks.
Despite this deficit, the government stated that it would maintain spending in key sectors such as infrastructure, transport, health and education, with $200B dedicated to physical infrastructure between now and 2022. Of the $200B spending, 10% would be devoted for the preparation of the 2022 World Cup, leaving the rest for infrastructure projects in transport, building urban areas, housing, health and education.
Looking at the monetary sector, total assets at commercial banks went up 1.91% since end of 2015 to $306.18B, end of Q1 2016. Private sector credit slightly grew 1.20% to $115.43B, while that of the public sector inched up 7.33% since year start to $69.05B by March. Total deposits broadened 1.73% to $178.61B, due to the 32.60% and 0.13% increase in non-resident private sector deposits and public sector deposits. Meanwhile, resident private sector deposits decreased 4.87% since year-start. Qatar’s central bank is taking necessary monetary policy measures to increase liquidity in the banking system. For instance, the central bank has cancelled several monthly Treasury bill auctions, as banks bid at high yields. Moreover, the central bank has set new maximum limits on open positions that banks can hold in foreign currency, 25% of capital and reserves in dollar, and a 5% limit for all other foreign currencies.
The Doha Stock Market Index (DSMI) marginally ticked down by 0.51% q/q to 10,376.20 points end of March. Trade during the last quarter of 2015 occurred at a higher volume of 615.85M shares worth $5.59B during Q1 2016, compared to 326.02M shares worth $4.93B in the last quarter of 2015. Global Index Provider FTSE Russell confirmed that Qatar will be upgraded from the Frontier to Secondary Emerging market. The upgrade will be implemented over two equal tranches in September 2016 and March 2017.