Qatar was able to avoid the recession of 2008 and 2009 and the economic future is looking even better with expectations of growth within the nominal GDP for 2010 and 2011 reaching double digits – 29 percent for last year and 25 percent for this year, according to estimates from the IMF. Qatar is forecasted to record the GCC’s highest rate of growth due largely to the $27.5 billion (or QAR 100 billion) stimulus plans put in place by the government to keep spending in health, transport and education at high levels.
Qatari government is emphasizing the development of economic sectors outside of the oil and gas industries in order to encourage diversification in the nation, pushing away from hydrocarbons. Some of that growth will be a result of the current development of two LNG projects that will produce 55 million tonnes annually, in partnership with foreign firms and aimed at the utilization of gas in the North Field. Estimates for the 2010 third quarter GDP in Qatar sat at $30.56 billion (or QAR 111.25 billion), a 21.1 percent improvement over the $25.23 billion (or QAR 91.85 billion) seen in the same period of 2009. This increase was due to more activity in the insurance and financial services sectors, as well as the construction, manufacturing and real estate industries.
There is promise in Qatar’s economic fundamentals as it ranks high for growth in the GCC region covering the 2010 to 2011 time period. Steady prices for hydrocarbons and healthy growth within credit should help to maintain positive growth for the future, driving the economy in the midterm.
When taking a long term view, growth is still strong, as it is for the medium term as well. After 8.6 percent growth for 2009, the real GDP in Qatar is forecasted to swell by 16 percent last year making Qatar the fastest growing GCC economy. This speedy momentum is due to a forecasted 25 percent growth in hydrocarbons and 11.5 percent growth in non-hydrocarbons, as well as being supported by massive government investments in capital projects that surpassed $30 billion (or QAR 110 billion) from 2004 to 2009. Qatar’s government has a foundational strategy of economic diversification focused on increasing those related to the LNG industry, both in the value-chain and linked within the stream. Real GDP growth in non-hydrocarbons should hit double digits this year, driven by the significant service increases and a swell in the construction and manufacturing industries.
Government revenue should be applied to the 9 percent fiscal short-fall seen in the 2009-2010 year, due to stable hydrocarbon prices that are hovering near the average of $77 per barrel of Qatari crude set in the fiscal policy. Volumes for export should rise, as will investment income, over the midterm as public enterprises keep transferring massive portions of their income from investments back into the budget. However, government spending should increase in proportion to the GDP increases.
As capital expenditures increase and several major businesses in Qatar tap into credit to move expansions forward, the government is responding with a 20 percent cut in corporate tax. This move follows the flat tax rate suggested for implementation across the GCC. Qatar should see more cash and investments flowing into the economy as a result. Businesses in Qatar have experienced a healthy kick off to 2010 with aggregate earnings for those firms on the Qatar Exchange rising 18 percent to reach $6.3 billion (or QAR 23 billion) for the opening three quarters of 2010. When compared to the same period in 2009, when that total reached $5.4 billion (or QAR 19.5 billion), this increase puts Qatar in the lead for corporate profitability. This performance shines in terms of the GCC as well as in international markets still hurting from the financial unrest.
Pressures From Deflation
In 2009 Qatar recorded the sharpest level of deflation in the whole GCC region, 4.9 percent due to a steep fall in rents. This amount followed the 15.2 percent inflation reported in 2008. Deflation figures for 2010 are expected to land around 2.4 percent with another easing forecasted for 2011 as international food prices jump and the cost for raw materials goes up. As the US dollar depreciates, the Qatari Riyal will experience inflation as well, since it is pegged to the greenback.
In the medium term, inflation looks to be around 4 percent as rents stabilize and the excess properties in the real estate industry disappear. Inflation outside of rent may see an increase with commodity prices going up internationally, causing imported inflation to clash with the rising domestic demand.
Banking should remain a profitable sector that is capitalized well. The sector will show resistance to any financial turmoil in the midterm as the policies of regulatory authorities, as well as their strong level of commitment, support the sector and provide the liquidity necessary to reduce risk and instability. Qatar bank reported a CAR (or Capital Adequacy Ratio) of 16.1 percent in 2009, an increase from the 15.5 percent seen in 2008. The CAR for 2010 was unchanged, however.
Profits for the 2009 fiscal year were reported at $2.71 billion (or QAR 9.88 billion) and 2010 saw 25 percent growth in the net profit of banks. The $3.39 billion (or QAR 12.34 billion) was the highest growth rate for the GCC. The quality of assets in Qatar’s banks remained high as the NPL:GL ratio (non-performing loans to gross loans ratio) stood at 1.7 percent as reported in December of 2009. That ratio moved up by 2 percent in 2010, and the LLP coverage ratio stayed high for 2010, moving from 83 percent in 2008 to 84.5 percent in 2009 and finally 85.1 percent in 2010.
Also, the QCB (or Qatar Central Bank) has plans to implement Basel III nationally in order to offer support to banks and the entire financial system, due to the fact that banks hold more than 4.5 percent in common equity (as required) as well as Tier 1 capital higher than the threshold of 6 percent. Proposals regarding the establishment of a single regulator within the financial system have been put forth in Qatar. Operating under the QCB, this regulator is intended to strengthen the reforms throughout the financial sector. Qatar made it through the crisis and negative effects of the global credit crunch due to sufficient capital being provided twice in 2009 by the authorities, who also purchased local equities from the banks, as well as real estate assets.
Growth in Credit
After credit slowed to 11.5 percent in 2009, down from 51 percent in 2008, the most recent figures forecast that credit growth has regained momentum and gone above 19 percent in 2010. Relatively speaking, Qatar’s credit growth is favourable when compared to Saudi Arabia’s (6.5 percent), the UAE’s (2.9 percent) and Kuwait’s (0.4 percent), measured over the same period.
Private sector credit should see major support from government investments and government action that will stabilize the banking sector’s capital base. QCB currently has a broad range of tools ready to provide the liquidity needed by the market. QCB is also continuing to monitor market developments, providing that liquidity and increasing transparency between the banking industry and the public, all without putting pressure on inflation.
Risky Outlook for the Economy
In the medium term there could be risks seen within the economy due to political turmoil within the region, slower international economic recovery, continued decreases in the price of property, slower credit growth, tightened conditions for credit internationally and less availability of financing for the projects planned. Also, any negative developments that surprise the GCC members are a risk. That being said, the policy and strategy of diversification in Qatar continues to allow those risks within the hydrocarbon to have limited effect.Paul Holdsworth, Staff Writer, Gulf Jobs Market News