Qatar budget 2018: Covering all bases

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By VL Srinivasan

Qatar’s annual budget for the calendar year 2018 is not only promising but has everything that is needed to continue with its planned infrastructure projects without any hitch due to stabilising oil prices.

The oil-producing countries including those which are not part of the Organisation for Petroleum Exporting Countries (OPEC) agreed in November 2017 to freeze oil production for another year. This means the oil prices would hover around $60 per barrel during 2018 which should be a big relief to the Qatari government, which has finalised the budget expecting the oil prices to be $45 per barrel. In other words, the revenues generated out of the high oil prices will reduce the budget deficit.

Spending is expected to total QR203.2 billion, up 2.4% from the budget plan for 2017, with the deficit declining 1.1% to QR28.1 billion. Of this, QR93 billion (45.8%) will be spent on major projects while QR22.7 billion has been earmarked for the health sector representing 11.2% of the total expenditure in 2018. The education sector has also been accorded importance with an allocation of QR19 billion, up by 19% compared to 2017.

While the revenue is to the tune of QR175.1 billion, up 2.9% on 2017, on account of an expected increase in the non-oil revenue, the deficit, which will be financed through the issuance of debt, is expected to be QR28.1 billion, down 1.1% from QR28.4 billion in 2017.

Transportation and other infrastructure projects such as the Metro Lusail Light Train, Al Bustan Highway Orbiter Expressway, Al Rayyan/Dukhan road and Al Khor coastal road have been provided with QR42 billion, accounting for 21% of the total expenditure. Keeping the 2022 FIFA World Cup in mind, the government has allocated QR11.2 billion for completion of new stadiums which are under various stages of construction.

The State also plans to award contracts worth $29 billion (over QR100 billion) to the private sector in order to encourage diversification, and focus on supporting food security projects, small and medium enterprises, and the development of infrastructure in economic zones and free trade zones.

This is in accordance with the directives of The Emir HH Sheikh Tamim bin Hamad Al Thani to support and encourage the private sector and increase its contribution to the process of sustainable development in the country.

Nearly QR12.5 billion has been allocated to land development including water and electricity networks, sewerage, roads and other related infrastructure for Qataris between 2018 and 2020.

The 2018 budget has allocated funds for the development of around 3,000 houses. This year’s budget also provides for the development of logistics, economic and free-trade zones, as well as support for food security projects and agricultural production.

For salaries and wages, QR52.2 billion has been set apart in the next year’s budget, up 8.8% on (QR48 billion) in 2017. This increase is due to the opening of several new schools and educational facilities, along with new healthcare centres and hospitals, in addition to expansions in some public facilities.

A different year
Soon after the economic blockade on June 5, Sheikh Tamim, in his address to the nation, said that 2018 differed from the previous years for the Qatari economy, as it had been strong despite the challenges.

HH Sheikh Tamim bin Hamad Al Thani, The Emir, State of Qatar

 

“We are called upon to open our economy to initiatives and investments so that we can produce our food and medicine, diversify our sources of income and achieve our economic independence in bilateral relations, from co-operation with other states, in our geographical environment and throughout the world, and on the basis of mutual interests and mutual respect,” he said.

The Emir also stressed that he had directed several times to follow a policy of economic openness to investment and diversification of sources of income, as at this stage it is no longer a matter of luxury, but a necessity.

He said that he had directed the government to achieve this vision, including economic openness, removing barriers of investment and preventing monopoly in the framework of building the national economy and investing in development, especially human development besides investing the gas revenues of recent inventions for future generations.

Minister of Finance, HE Ali Shareef Al Emadi, stressed that the directives of the Emir have been adhered to in order to increase the efficiency of current and operational expenses, and provide all necessary funds to complete the implementation of major projects according to approved plans.

The goal is to achieve sustainable development in its economic, social, human and environmental dimensions, as envisioned by Qatar National Vision 2030. The budget also focuses on providing support for food security projects, supporting and expanding small and medium ventures and developing infrastructure in the economic and free zones.

Despite the neighbouring countries imposing an unfair blockade on Qatar since June 2017, the Qatari economy has maintained its momentum and its outlook remained positive.

HE Ali Sharif Al Emadi, Minister of Finance, State of Qatar

 

“Qatar continues to make significant progress in reducing its deficit, which resulted from low fuel prices and high costs of development projects. Also, the unjust blockade has contributed in stimulating our national strategy which is geared towards diversifying the country’s economy.”

“Revenues are rising significantly, and the reasons for this increase should be attributed to the government’s efforts to diversify its economic endeavours. The government allocates more funds to major projects in a variety of sectors, which contributes to sustainable development efforts in Qatar,” he added.

A good beginning
The country’s economy had an auspicious start in 2018 with the merging of RasGas and Qatargas into a single entity which come into force in January. This not only helped in saving QR2 billion but also made the new company Qatargas the biggest LNG exporting firm in the world with one vision, one management system and one business culture.

Qatargas operates 77 million tonnes/year of liquefaction capacity in 14 trains at Ras Laffan Industrial City and has a chartered fleet of 70 LNG carriers.

Even the capital market experts are optimistic about the performance of the stock exchange in 2018, confirming its ability to achieve the highest growth rates on average. This comes as a result of a number of factors that will stimulate the market, such as the 2018 State budget and the promising numbers and indicators that provide optimism and enhance confidence in the performance of the Qatari economy in the next phase.

Hamad Port, which became operational in September 2017, is expected to give further fillip to the country’s strong and robust economy as it is one of the biggest and newest ports in the Middle East. Its estimated capacity is of 7.5 million containers and the port authorities have signed several agreements with major shipping lines to link Hamad Port with international ports in Turkey, China, Taiwan, Oman, Pakistan, Singapore, Kuwait and Australia.

Exhibition ‘Made in Qatar’ was held to open new markets, promote mutual trade growth with many countries, enable local manufacturers and businessmen to identify these markets and giving them opportunities to share experiences, information and techniques that can benefit the business sector in the country.

The results of these initial efforts were the emergence of new factories and industries in Qatar and the increase in the number of industrial establishments existing and registered in the industrial register at the Ministry of Energy and Industry to about 730 industrial establishments with investments exceeding QR260 billion.

Industry hails budget
The budget has been welcomed by captains of the industry and experts who said that it reassured the healthy state of the Qatari economy and the commitment to achieve long-term plans set out for the country.

Gulf Warehousing Company (GWC) Group CEO Ranjeev Menon said that major amount has been dedicated for completion of major projects in healthcare, education, and transportation/infrastructure, in the lead-up to the 2022 World Cup.

“Awarding of QR42 billion for transportation and infrastructure, which accounted for 21% of total expenditure, will directly impact infrastructure projects while the private sector stands to gain in response to the government’s initiatives to diversify the economy, which all boils towards actualizing Qatar National Vision 2030,” he said.

Akber Khan, who is Senior Director, Asset Management Group, at Al Rayan Investment noted that while budgeted revenues and expenditure for 2018 were very similar to that of 2017, there were several notable points in the 2018 budget.

Infrastructure spending is set to remain elevated, continuing at an average of QR182 million ($500 million) a week. This is combined with an almost 10% jump in the wage bill to partly accommodate new government schools, new university faculties, and a raft of new healthcare related projects.

“The budget assumes a QR28 billion deficit taking an average oil price of $45 over the year. While oil may show volatility during 2018, OPEC and Russia’s determination to restrict supply to support prices suggests a much higher outcome. Assuming spending remains as planned, $65 (oil price) would lead to an almost QR30 billion surplus,” he said.

The global economy enjoying a synchronised growth is a key driver helping oil prices, and he expects another positive year for oil in 2018. While this will directly benefit few Qatari listed stocks, the government will be boosted by increased hydrocarbon revenues offering it the option to add to spending if it chooses.

Akber Khan, Senior Director – Asset Management Group, Al Rayan Investment

“Heightened infrastructure spend as budgeted will benefit the banking sector which will be called upon to fund a significant proportion of this spending. Consumer related sectors may start to see some relief as the population continues to expand and some of the initiatives to bring back tourists start to bear fruit,” Akber Khan said.

Qatar Chamber Chairman Sheikh Khalifa bin Jassim bin Mohammed Al Thani said the budget for the new fiscal has set aside significant funds for supporting food security projects, expanding small and medium industries and developing infrastructure in the economic and free zones, giving the private sector a wider opportunity to play a bigger role in the projects put forward by the government.

“We expect the new budget to play an important role in moving the economic process in the coming period, especially as it involves the signing of new projects contracts worth a total of QR29 billion, which promotes growth in non-oil sectors,” he said.

Qatar Financial Centre (QFC) Authority Chief Executive Officer Yousuf Mohamed Al Jaida opined that the budget was a testament to Qatar’s strong economic performance despite the ongoing blockade. “As Qatar’s only business and financial centre, QFC’s overall strategy has always been to diversify the local economy and continues to attract FDI, so we are especially proud that the budget showed a clear increase in non-oil revenue and we look forward to seeing this continue to rise in the years ahead.”

He added: “In 2017, the QFC continued its international outreach with roadshows across Europe and Asia and there was a clear indication of interest from abroad in ongoing major projects in the build-up to the 2022 FIFA World Cup. Qatar’s economy will continue to provide a vast array of opportunities for local and international investors as we continue to grow and develop in line with QNV 2030.”

“The current regional developments do not deter us from our growth objectives and plans and this budget is further proof that Qatar remains open for business,” he added.

Economic blockade factor
The economic blockade has only further resolved the government’s plans to speed up its economic diversification programmes by which the country has witnessed foreign investment and established inroads in developing the various economic sectors in the country.

Ranjeev Menon said to that end, programmes such as the Ministry of Economy and Commerce’s ‘Own Your Factory in 72 Hours’ had gained a lot of interest and attention, with 63 investors shortlisted to set up factories worth QR2.5 billion under that initiative.

Ranjeev Menon

Due to strong government foresight, the warehousing and logistics parks developed by Manateq – of which the GWC Bu Sulba Warehousing Park and the Al Asmakh Logistics Park are currently operational under GWC’s management – are ready and primed to provide start-ups and small and medium enterprises with plug-n-play facilities ready to support their warehousing and light-industry facility’s needs, Menon said.
MR Raghu, Senior Vice President – Research at Markaz, an investment management and Research company in Kuwait, said the economic blockade has only reinforced the resolve to achieve economic diversification through implementation of various programmes. Though during the initial period the financial system was squeezed due to the withdrawal of deposits, the government quickly injected liquidity to ease the situation.

“The current budget which focuses on streamlining investments and large-scale spending on development of physical and social infrastructure could only accelerate the economic diversification agenda,” Raghu said.

Bridging the deficit
The Finance Ministry, in a statement said that the budget deficit will be financed through the issuance of debt and reports suggested that the government was planning to tap the debt market in the first quarter for about QR32.76 billion ($9 billion) and the officials were in talks with several international banks about the sale.

The bond is likely to be in line with or more than Qatar’s last issuance of QR32.76 billion ($9 billion) in 2016. “Oil-exporting countries across the Gulf Cooperation Council region are tapping debt markets to bolster public finances after crude prices slumped. Saudi Arabia’s issuance led regional sales last year, raising $21.5 billion,” according to data compiled by Bloomberg.

According to Akber Khan, Qatar was the only country in the region not to tap fixed income markets in 2017. However, the government is expected to try and refresh the sovereign yield curve which would facilitate private sector issuance. It is worth noting that sustained high oil prices would lead to a budget surplus rather than deficit by year-end, he said.

Raghu said that though Qatar’s budget has taken a very conservative estimate of oil prices reigning in at $45 per barrel, the prices have been much higher and this is likely to result in a windfall in revenues, resulting in lower deficits.
To fund the deficit, Qatar government could source additional capital from the debt markets in the form of bond instruments. Moreover, with Qatar commanding an investment grade sovereign rating of ‘AA-‘ from S&P Ratings agency, it could aid in sourcing capital at a lower cost, he said.

Moody’s Investor Service too has described Qatar’s prudent approach to the 2018 budget planning as “credit positive and reduces the risk of fiscal slippage” that would increase the government’s debt burden at potentially higher costs.
Moody’s has forecast a total revenue of QR207.3 billion assuming that oil prices will average $54 per barrel next year, 20% higher than the oil price budgeted by the Qatari authorities. Hence the rating agency has forecast a small fiscal surplus of QR2.3 billion (0.4% of GDP) in 2018, compared to the authorities’ estimate of a QR28.1 billion (4.4% of GDP) deficit.

Food security vital
Agriculture is another area which can boost the economy as plans are under way to increase agricultural production to meet the needs of the local market and achieving self-sufficiency in agricultural and animal products through the Qatar national food security programme and the comprehensive food security plan for the period 2014-24.
Qatar has about 65,000 hectares of arable land, which produces about 568,000 tonnes of agricultural products, covering the needs of the local market by a large percentage. The government is also exploring the possibility of expanding the arable land besides increasing the number of farms to 2,000, which will work on the production of vegetables, fruits and other crops and supplying them to the local market in the coming years.

Raghu said that in the recently released Global Food Security Index 2017 developed by the Economist Intelligence Unit (EIU) and Dupont, said that despite the blockade, Qatar was ranked 29 among 113 countries. Turkey and Iran have helped Qatar in overcoming the food shortage.

MR Raghu

“The government is also expanding its food storage capabilities by constructing strategic food security facilities and warehouses, at Hamad Port, with a capacity of stockpiling processed and stored food for three million people for two years at a cost of QR1.6 billion ($440 million). Development of new trade links, expansion of capacity at airports and seaports are all being undertaken to improve and enhance the food security position,” Raghu added.

Ranjeev Menon said the budget would, among other things, support the uptick reported in the manufacturing sector growth reported in 2017, with QR260 billion investments being reported in the sector, and 730 industrial facilities registered with the Ministry of Energy and Industry.

This would directly support Qatar’s efforts to become self-sufficient in food and consumable products, all of which must be supported by strong logistics infrastructure that can provide the storage and distribution solutions needed for each individual type of project.

The opening of the much-awaited infrastructure projects like the Hamad Port, which has strong capabilities, modern facilities and advance systems, have been positioning Qatar as a re-export hub in the region, increasing the volume of trade between them and the rest of the world.

“The port will allow private sector businessmen to increase the flow of goods to and from the country, facilitating both trade and advancing entrepreneurship for the savvy trader. The port is also witnessing multi-million dollars worth of investments, supporting its food security warehouses and processing facilities,” Menon added.