Qatar Economy Watch: January 2015
Qatar has enjoyed significant economic growth with real GDP increasing by 10.7% per annumsince 2008, and it is now one of the richest nations in the world with GDP per capita exceeding $100,000 at PPP (Purchasing Power Parity) exchange rates. The nation has weathered global economic instability by taking advantage of its vast natural gas reserves, producing the highest levels in the GCC at 159 bn cubic metres in 2013, and becoming the biggest LNG exporter in the world. Furthermore, Qatar has managed to contain domestic price pressures by setting over $300bn of export revenues aside in its growing sovereign wealth funds and managing a proactive interest rate policy.
Qatar’s reliance on gas exports, and the decoupling of gas and oil prices in the aftermath of the Japanese earthquake of 2011, suggest that it is ikely to be one of the best placed GCC nation to weather the current fall in oil prices. That said, Qatar is not immune, and the medium term prognosis for global gas supply will likely place downward pressure on prices with increases in supply from both Australia and the US in particular. Even though we project inflation to remain at manageable levels going forward, inflation volatility remains a threat due to the unprecedented investment programme related to the 2022 FIFAWorld Cup which may lead to domestic bottle necks. Also, securing governmental revenue beyond hydrocarbons has proved difficult for Qatar and going forward, diversification of the revenue base should be a key focus area.
To meet these challenges and create a thriving investment environment we recommend that the authorities strengthen macro-fiscal capabilities in three areas: first, by accelerating the deepening of Qatar’s capital markets and sources of funding; second, expanding the government’s revenue base; and finally, managing government expenditure efficiently. These measures will help to achieve the desired AAA credit rating, develop a business environment attractive to private and international investors, diversify the economy, and ensure prudent management of governmental expenditure.We see the outlook for the coming years as moving to a more sustainable level of growth, tighter fiscal discipline and continued diversification of the economy.
