Qatar: Risk Assessment
Country Risk Rating
Business Climate Rating
- Massive gas reserves
- One of the largest exporters of liquefied natural gas (LNG)
- Strong financial buffers protecting economy from external shocks
- High per capita income
- Sensibility to shift in energy prices
- Still high level of hydrocarbon-dependence of the economy
- Slower growth in infrastructure as the World Cup 2022-linked projects are winding down
- Existence of geopolitical risks related to the GCC crisis
Growth prospects below historical average mainly on fading government spending, decelerating investments
Growth is expected to pick up slightly in 2020 it would remain below its average of 12.6% between 2005/2014, despite slowing activity in the mining and quarrying sector, which accounts nearly for half of GDP. Construction sector will also continue to show weakness as long-term infrastructure projects have now neared completion. 43% of the 2019 budget has been allocated to the major projects in leading sectors such as healthcare, education, transportation and others related to the hosting of the World Cup 2022, underlining the importance of government spending to sustain growth. Hence, lower government support will drag down investment growth. Over the next few quarters, hydrocarbon production, which accounts for roughly half of GDP, may slow down due to contracting natural gas production. Yet, by the end of 2020, it may start to increase through with the Barzan Gas and North Fields expansion projects, if they become operational. Private consumption, which represents only 25% of GDP, will continue to contribute positively to growth, as it would be backed by public sector wages. Prospects will remain challenging for the manufacturing sector that contracted by 7.4% in Q2 2019 from a year earlier due to the continuous blockade by Saudi Arabia and its allies since mid-2017. On the other hand, with the Qatari dinar remaining pegged to the US dollar, Qatar Central Bank is expected to follow the footsteps of the US Federal Reserve in cutting its rates in the coming quarters. However, credit growth would remain limited thanks to the limited demand from the public sector and a weak construction sector.
Fiscal balances on track, solid financial buffers
After recording a deficit in 2017, Qatar’s budget is estimated to produce a large surplus in 2020. Global recession risks and weaker demand for oil are expected to lower oil prices, which in return can be a drag on the revenue side. Between 1990 and 2018, hydrocarbon revenues averaged about 90% of total fiscal revenues. As a result, lower oil prices and slower hydrocarbon production in the upcoming period are seen to offset partly the positive impact coming from the introduction of excise tax early in 2019. On the other hand, as large infrastructure projects linked to the 2022 World Cup are ending, the capital spending of the government is expected to decline, supporting the fiscal surplus. Investment spending accounts for two fifths of total expenditure. In case of the worsening of global uncertainties, Qatar’s fiscal performance would be negatively impacted on decreasing oil prices, as it would push the government to increase its counter cyclical spending. However, the country has enough financial buffers to withstand against global shocks. Lower energy prices and decline in hydrocarbon production are expected to drag down Qatar’s current account surplus as hydrocarbon exports represent nearly 80% of total export revenues. Nevertheless, declining demand for imported capital and consumer goods will decrease import growth, which would avoid a rapid narrowing of the current surplus. Having said that, Qatar’s external position will continue to remain solid thanks to the large sums in its foreign reserves and sovereign wealth fund.
Looking for new alliances, political outlook remains mostly stable
It does not seem that the boycott implemented by Saudi Arabia, Bahrain, the United Arab Emirates and Egypt against Qatar for over two years now will be lifted soon. However, this situation has neither fundamentally affected Qatar’s economy, nor domestic political stability. The country continues to chase new alliances, as it has started to change its traditional moderator role in the region into a more leading position. It has strengthened ties with Turkey and Iran but it has also started to look to widen its strategic relations in East Africa. Business environment has improved thanks to the construction of new transportation infrastructure in the country ahead of the World Cup. The government continues with its efforts to boost private sector through economic diversification which creates new business opportunities. The issuance of a long awaited public-private partnership (PPP) law, which was already approved by the Cabinet in April 2019, would support the development of the private sector.