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Wednesday, June 23, 2021

Qatar’s finances to take hit from falling oil prices

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Photo for illustrative purposes only.
Photo for illustrative purposes only.

As Qatar continues to up spending on domestic real estate and infrastructure projects, the state and its Gulf neighbors are facing a warning to reduce expenditures as oil prices fall.

In a meeting of GCC finance ministers and central bank governors in Kuwait yesterday, the head of the International Monetary Fund said that oil prices, which have fallen approximately 25 percent since the summer, “increases the urgency for fiscal consolidation.”

Al Bayt (Al Khor) Stadium rendering
Al Bayt (Al Khor) Stadium rendering

IMF managing director Christine Lagarde’s comments come as construction on the Doha Metro, Msheireb Downtown redevelopment and several World Cup football stadiums ramps up.

While these and other mega-projects, such as the Pearl-Qatar and various highways, have helped diversify the country’s economy away from hydrocarbons, many of the developments are being paid for by the government.

Qatar relies more on exports of natural gas than oil, but prices of the two commodities are correlated. The IMF estimates that Qatar needs oil prices to stay above US$77.60 a barrel to continue running a budget surplus.

Brent oil futures closed Friday at $86.13, while a basket of prices among OPEC nations ended at $81.67 a barrel. The drop in prices has been attributed to less demand due to predictions of weak global economic growth.

Qatar typically takes lower oil prices into account when setting its annual budget, which often results in revenues coming in much higher than predicted. For its most recent budget, Qatar assumed oil would sell for $65 a barrel.

But higher-than-expected expenses have eroded that cushion in recent years. In 2013-14, government expenditures were more than 9 percent, or QR21 billion ($5.78 billion), higher than budgeted, according to the Qatar Central Bank (QCB).

This means that lower natural resource revenues could present challenges for Qatar’s government, which reportedly rescheduled 15 percent of its development projects earlier this year among rising costs, among other hurdles.

Where Qatar get its money

The exact impact of declining oil prices on Qatar’s public finances is unclear. The country has diversified its sources of revenue and could likely tap debt markets and borrow more money if needed.

A growing share of government revenue is coming from investment income as well as Qatar’s 10-percent corporate tax, according to a recent report by Qatar National Bank.

From 2013-14, income from oil and gas made up 56.3 percent of the government’s revenues, which totaled QR346 billion ($95.2 billion), according to the QCB. Investment income made up 29.7 percent.

According to Kuwait’s state news agency, the IMF’s Lagarde said Gulf countries could mitigate the risks posed by declining oil prices through replacing across-the-board subsidies with measures targeted at those who are most in need.

“That is a good way to re-orientate public spending,” she said.

Kuwait has repeated this message to other GCC members and has also called for reductions in government wages to help cap public spending.

In Qatar, there’s been no public suggestion by officials that the country is considering a reduction in subsidies or has plans to clamp down on government salaries and wages, which climbed 19.7 percent in 2013-14.

But in one of his first national addresses, Emir Sheikh Tamim bin Hamad Al Thani promised to cut the fat in government.

While no figures have officially been disclosed, the budgets of the Qatar Museums and the Doha Film Institute, among other organizations, are believed to have been drastically reduced.

Elsewhere in the Gulf, Oman appears to already be moving in this direction. The country’s minister for financial affairs told Reuters on the sidelines of the weekend’s meetings that declining oil prices will push Oman to likely start cutting state subsidies next year.

Thoughts?

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A_qtr
A_qtr
6 years ago

Not entirely true. Qatar does not relay on oil exports as much as other OPEC producers and regional oil producers. Qatar depends more on gas/LNG exports which more are less are priced differently than oil.

For budget year 2014 Qatar used an oil price of $65 to manage expenditures, so even with falling oil prices a surplus is likely to happen. Iran and Iraq budgeted $110, Saudi $99, Qatar had the lowest of all OPEC producers.

Also Qatar gas a surplus of about $36 billion sitting which will help weather any financial storm for years.

All that aside there have been cuts as if recent by the new PM.. Open cheque book policy is coming to an end and all govt agencies are coming under scrutiny on how they manage funds…

I personally believe $50-$60 oil is ideal for the global economy and forces big spenders like AD and Doha to think twice how to manage resources

Huzz
Huzz
6 years ago
Reply to  A_qtr

Good comment. I like your thinking on this. The historical problem for all countries that use hydro carbons as their source of income is that it is more or less impossible to replace that revenue with anything of a similar value. Oil and to an extent gas is gold and he who has it is king. The long term problem for Qatar will be to try to diversify which even if successful will see the Qatari community have to step up to some extent and pay for their existence. The nanny state paying for all utilities and artificial salaries for nationals will have to come to an end at some point or else the cost of running the country will outweigh the revenue streams. The Emir (who is a nice guy) has to proceed cautiously as if he moves too quickly he will have a brother, cousin or other relative who will look to take his place. Reserves are great but they too will run out quite quickly if they are being used on a yearly basis – Kuwait being a good example here. They are much further down the road in this regard than Qatar. It is difficult to know how this will progress over the years and for Qatar the problem is many years away – probably not in my lifetime anyway. Whether or not there can be enough diversification will have to be seen but it may happen that once the gas is gone Qatar is just swallowed up by a regional neighbour and nobody looks as there is nothing left for which to fight.

A_qtr
A_qtr
6 years ago
Reply to  Huzz

an income tax of say 15-20% of basic salary of all Qataris and something like 5% for expats should go a long way… also gov’t services should be charged and subsides reduced drastically…

for doha what will really break its back, i believe, isn’t falling oil or gas prices, but its the amount of subsidies provided… everything we need, local or expats, is one way or another subsidized… fuel, utility, chicken and eggs, drinking water, health care…

i think utilities should increase by 25% and applied on all with no exception, local or non local. fuel prices another 15% hike… health care insurance free for locals and an annual sum of 2000 or more for non locals…. tax on car depending on how big the car engine is.. say QR500 per litre per year… enforcement of traffic fines… renew your driving license each ten years for QR 1,000 …residency permit that’s QR 1,000…

also the state needs to get rid of non nonessential workers.. like tea boys and petrol station attendants… clamp down on illegals… also they need to cut or at least pay freeze all govt job pays for locals.. make it unattractive for local to go into government…

their should also be a municipality tax, 1% annually of the net worth of my real estate… this goes to making sure our streets are clean and lights working…

there should also be a separation between the Amiri Diwan funds and the Qatar Gov’t funds… the Amiri Diwan should not be financing road projects or public housing.. and the Qatar Gov’t shouldn’t be funding projects like the MIA or zero value film festivals..

my dinner is ready.. and my kids are jumping of the dinner table and onto sofas… gtg

Rob
Rob
6 years ago
Reply to  A_qtr

Blimey, they’d love you in Westminster!! Nice work.

A_qtr
A_qtr
6 years ago
Reply to  Rob

either the above or we print money like Zimbabwe

KingOfKings
KingOfKings
6 years ago
Reply to  A_qtr

Being unsustainable in almost everything is a major set back here. Your theory is good, but then how would Qatar intend to keep its western talent if all that is implemented? my assumption is that any westerner working in Qatar is not there for the weather or their attraction to the culture. You take from them the only reason to be there will impede or even halt the country at a much faster rate. Qatar’s open cheque strategy has been working for them, and in many cases, it is the lack of the law which comes in handy because then, well there won’t be no one to blame and they love that 🙂

Truth-Seeker
Truth-Seeker
6 years ago
Reply to  A_qtr

Are you sure you can get by without the tea boys? After all you are part of a generation that was raised by nannies!

Truth-Seeker
Truth-Seeker
6 years ago
Reply to  A_qtr

But there is a simpler and fairer option; stop extravagant projects that only serve few influential individuals, and control the leakages in the system that only benefit, again, those same guys.

sadam
sadam
6 years ago
Reply to  Huzz

UAE- diversified.Dubai owes a total of $142 billion in debt, equivalent to 102% of its gross domestic product, according to the International Monetary Fund. Some $35 billion of the total belongs to the government or is guaranteed by the government. About $60 billion comes due between 2013 and 2017, according to the IMF.

Dubai’s market crashed as oil, its lifeblood, peaked

Read more at http://guardianlv.com/2014/03/dubai-drowning-in-debt/#UUMkyc4PEtyilEXJ.99

Kuwait-seems to be in big trouble.government is moving towards cutting some of the energy subsidies which drain billions of dollars from the state budget every year,Risk of unrest if subsidies substantially reduced.Kuwait’s Finance Minister’s warning that the country will “inevitably” record its first deficit in nearly two decades within a few years came early.

Saudi-crude oil accounts for more than 90% of the country’s exports and nearly 75% of government revenues

Bahrain- 2013 protest, Widespread inequality fanning the flames in Bahrain, the spike in violence is likely to put pressure on Shiite opposition groups as they engage in talks to ease the crisis with Bahrain’s Sunni-led government, despite objections from hard-line factions who want to topple the Western-backed monarchy.

dubious
dubious
6 years ago
Reply to  Huzz

Perhaps Qatar can diversify by using hectares of empty and otherwise usless desert plus the plentiful sunlight and minimal cloud cover to run solar-thermal generators?

Or orbital solar stations beaming energy down to ground receiver arrays out in the desert? Loads of spin-off space industry stuff from that including some sort of electromagnetic railgun booster to get stuff into orbit cheaper?

With a bit of foresight and effort we could get the global energy market sewn up just as they think they’ve got us stuffed with this shale oil malarkey.

Loads of things you can do with heaps of cheap power above Aluminium smelting.

Use it to crack water and ship the hydrogen to Europe to burn in new clean H2 power stations (owned and run by Kahramaa?) At least until the Qatar Superconductor Research Centre solves the problem of high temperature SCs and can transport the power directly!

Lasers need loads of power; let’s get some eggheads in to a Qatar Coherent Emissions Lab developing the next-gen lasers. Perhaps a spin off (hah!) QTel lab in the quantum entanglement field to eliminate network latency and obsolete submarine and satellite telecoms among hundreds of other potential applications?

Datacentres eat power – where are Qatar’s entries in the top100 supercomputer list?

Synchrotrons and linear accellerators are extremely power hungry – Where’s the Middle East’s version of the Large Hadron Collider?

Depressing lack of interest in Big Science from this region these days.
It’s almost like no-one in government has played Civilisation, Alpha Centauri, or SimCity 4. Go education, research, and high-tech industry first and fast!

Guest
Guest
6 years ago
Reply to  A_qtr

I have read recently an article about this which sheds some more light on why Saudi Arabia is not doing much or anything at all to keep the prices above 100 or at least above 90USD. In fact, Saudi Arabia is planning to let the oil price stabilize under 80USD. The reason is that under 80, most US and Canadian shale oil companies will halt any future projects of shale oil, as their profit margin is badly hit. At 70 the barrel, there would probably be no more money to make for US and Canadian companies (unless new and cheaper technologies are invented, which is possible due to the huge money poured into R&D for Shale oil).

It is a compromise that Saudi Arabia is willing (and obliged) to do in order to keep the oil monopoly under its umbrella (and that of the OPEC). The point is that Saudi Arabia can live with that by cutting expenditures and raising a little bit the ridiculously cheap petrol prices in the local market. However, this is clearly not the case of Oman, Kuwait, Bahrain, Iran, Venezuela Algeria and Russia. With an oil price under 80 dollars the barrel, they need way more than cutting expenditures to solve their financial issues. They simply need to rethink and restructure all their economic strategies.

For Qatar though the situation seems to be fine. As mentioned in the article, Qatar’s yearly budget is based on a very low oil price, which means that the country has enough money to carry on its WC-related expensive projects at least for few years ahead.

The Reporter
The Reporter
6 years ago
Reply to  Guest

But the WC itself is not expensive and is fraction of the the sum that is being spent to provide the short term infrastructure that Qatar needs even if there was no WC. I can’t help feeling though that there will be little legacy for all this expenditure. Doha will never rival Dubai and long term once the massive development ends and Lusail comes online what future does Doha have other than the same as the pearl fishing villages?

KingOfKings
KingOfKings
6 years ago
Reply to  The Reporter

Excellent thoughts. They are building way too much for way too little. This is like a family of 3 building a house suitable for 300. Now, this house will look beautiful. BUT, you will need more people to clean and maintain it than those who will live in it. The worst part is that the more civilized Qatar becomes, the less likely any of these who clean and maintain that giant house will stay in it! So, it will exponentially get dirtier especially as the country becomes more of a country and less of a tribe, which is insane.

Yet worst, Qatar can’t make its cleaners become owners of that house, because then, they risk that their own house will get taken away from them completely!

The vision and strategy for this country is more ambiguous than Einstein’s theory of relativity. It makes you wonder whether some people are way too smart or way too not-so-smart.

While Qatar’s existing natural gas reserves could last anywhere between 140-150 years from now, I would not place my money on any bet where the notion of “Gas” or “Petroleum” will seize to exist beyond the upcoming 15-20 years.

Yacine
Yacine
6 years ago
Reply to  A_qtr

I have read recently an article about this which sheds some more light on why Saudi Arabia is not doing much or anything at all to keep the prices above 100 or at least above 90USD. In fact, Saudi Arabia is planning to let the oil price stabilize under 80USD. The reason is that under 80, most US and Canadian shale oil companies will halt any future projects of shale oil, as their profit margin shrinks to critical levels. At 70USD the barrel, there would probably be no more money to make for US and Canadian companies (unless new and cheaper technologies are invented, which is possible in the short-to-mid term due to the huge money poured into R&D for Shale oil).

It is a compromise that Saudi Arabia is willing (and obliged) to do in order to keep the oil monopoly under its umbrella (and that of the OPEC). The point is that Saudi Arabia can live with that by cutting expenditures and raising a little bit the ridiculously cheap petrol prices in the local market. However, this is clearly not the case of Oman, Kuwait, Bahrain, Iran, Venezuela Algeria and Russia. With an oil price under 80 dollars the barrel, they need way more than cutting expenditures to solve their financial issues. They simply need to rethink and restructure all their economic strategies.

For Qatar though the situation seems to be fine. As mentioned in the article, Qatar’s yearly budget is based on a very low oil price, which means that the country has enough money to carry on its WC-related expensive projects at least for few years ahead.

MIMH
MIMH
6 years ago
Reply to  Yacine

I think you have nearly got it, yes it benefits Saudi in that way but it also hurts Iran, (makes Saudi happy) and Russia. (Makes the US happy). Saudi can maintain market share but Russia and Iran are hurting and cannot live with the price hitting lower than $80.

Qatar is fine, it has little oil and most LNG is tied to long term contracts. Yes a hit in income but something it can live with.

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