Current Economic State of Qatar
Although Qatar is among the smallest Gulf countries in terms of geography, it has the third largest supply of natural gas in the world as well as a large supply of petroleum.
Qatar believes its future economic security lies in its North Field, the world's largest concentration of natural gas at more than 500 trillion cubic feet (14 trillion cubic meters). The development of this field is expected to cost a total of US$ 30 billion.
Qatar is governed by the ruling Al-Thani family through its head, the Emir. The Emir holds absolute power that has been influenced by consultation with leading citizens, rule by consensus and the right of personal appeal to the Emir. The Emir considers the opinions of leading citizens, whose influence is institutionalized in the Advisory Council, an appointed body that assists the Emir in formulating policy.
The State owns most basic industries and services, but the retail and construction industries are held in private hands. The government's plan for the immediate future is to maximize revenues, minimize the growth in expenditure and encourage the private sector to play a greater role in the economy.
Qatar's 120,000 native population enjoys high per capita incomes (about US$ 17,000), mainly from oil sales. But several years of low oil prices forced the country to become more economically prudent. Citizens, for example, must now pay for basic health services and driving licenses. The only services that Qataris receive free of charge are water and electricity, and even this may not last much longer.
This year's projected budget deficit is estimated at nearly $1 billion, equivalent to 10 percent of GDP. In an attempt to reduce this gap, the government has begun implementing austerity measures and is systematically withdrawing the numerous privileges it has distributed to nationals at the peak of the oil boom.
Despite the large projected deficit, the government has promised the International Monetary Fund to balance its budget by 2000. The government is hoping that higher oil output, coupled with rising prices will help close the gap. Qatar receives about 70 percent of its state revenue from oil sales and the rest from hydrocarbon-base industries.
In 1998, Qatar's balance of trade surplus declined to QR 1,307 million (roughly US$ 358 million) from QR 3,164 million (US$ 867 million) in 1997. This contraction is primarily the result of two factors: reduced rate of exports combined with an increased rate of imports. On the export side, Qatar's oil exports expanded in volume, but yielded less revenue due to last year's price slump.
Qatar is banking its future prosperity and political profile on its North Field; the world's largest single concentration of natural gas at more than 500 trillion cubic feet (14 trillion cubic meters). The development of this field is expected to cost a total of US$ 30 billion.
But the investment should be worthwhile. In 2002, gas sales are anticipated to reach 10.8 million tons, up from 3.6 million tons in 1999. Total LNG revenues in 1999 are projected to double to almost $2,200 million, as Ras Laffan Natural Gas Company (Rasgas) commences its operations and Qatar Liquefied Natural Gas Company (Qatargas) expands production. In August 1999, Rasgas cemented an energy deal with India's Petronet, consisting of the annual purchase of 7.5 million tons of LNG for 25 years, beginning in July 2003. Rasgas has also bid to acquire a 26 percent stake in the two Indian LNG terminals.
In addition, the signing of preliminary agreements to supply gas to the UAE's Offset Group under the Dolphin Gas Project will further boost Qatar's industry in several ways. Dolphin will help Qatar develop the regional market for gas that it has eagerly sought. Furthermore, if plans for a multi-billion dollar undersea pipeline to Pakistan and India materialize, the financial rewards from tapping these markets will be lucrative. Nevertheless, these plans will not be realized in the near future. Pricing and legal obstacles have blocked the project since 1993, while Pakistan has stated that it would not provide any financial support, since it prefers that the project be financed by the private sector.
The Qatar Central Bank successfully launched the state's first local Treasury bond in July 1999. The enthusiasm with which the local bond issue was received was mainly due to strong foreign interest in the offering, which closed approximately 100 percent oversubscribed. The attraction to foreign banks was that interest paid on the bonds is non-taxable. The issue also represents a government attempt to diversify its borrowing options, and follows official indications that Qatar will reduce its activity on the international project finance market.
Indicators: 1997 1998 1999e
Real GDP (US$bn) 10.8 12.0 12.2
Real GDP growth (%) 10.5 0.3 1.5
Fiscal deficit (% of GDP)-6.5 -10.3 -10.4
Annual Inflation (%) 2.9 1.5 3.0
Exports (fob, US$bn) 5.36 4.25 4.35
Imports (fob, US$bn) 4.71 4.37 4.70
Trade balance (US$bn) 0.65 -0.12 -0.35
e - forecasts
While the government is focusing its energies on meeting the increasing economic expectations of the population, its success will be linked to the relatively higher rate of oil production (and prices) from both on and offshore fields, as well as oil prices.
The government's plan for the immediate future is to maximize revenues, to minimize the growth in expenditure and to encourage the private sector to play a greater role in the economy. Difficulties in the gas and oil sector have prompted the Qatari government to turn to other economic channels in an effort to boost revenues. In December 1998, a partial floating of telecom provider Q-Tel took place. During this public offering, 45 percent of Q-Tel's interest was sold to the public, while the government retained control over the remaining 55 percent of the company.
A key policy objective is to rejuvenate the oil sector, which appeared to be in terminal decline until a change of policy brought in foreign companies, new technology and new investment. In the spring of 1996, oil production surged to a ten year high of 470,000 barrels per day (bpd). Further output gains are on the way, as the Government forecasts oil production of 850,000 barrels per day in the year 2000. However, this increased production, even if coupled with higher oil prices, will not alleviate the Government's financial difficulties and budgetary deficits in the near future.
The government is raising new revenues elsewhere. A departure tax is now payable at Doha international airport and draft legislation is being prepared for new health cards and fees.
© 2000 Mena Report (www.menareport.com)