Qatar’s Crown Prince, Jasim bin Hamad bin Khalifah Al Thani, approved by Royal Decree on 27 March the country’s fiscal year 2002-03 budget to take effect immediately (Qatar’s fiscal year starts on 1 April and ends on 31 March) with a 14% rise in spending to QR20bn ($5.49bn) and a projected 0.83% increase in revenues to QR18.2bn ($5bn – see Table 1 below). The budget is based on a typically conservative official oil price assumption of $16/B, or 3% lower than that of the previous year. In an official statement, the Qatari Ministry of Finance said that the budget “was focused on investment in infrastructure projects with the aim of encouraging small and medium industries and giving a greater role to the private sector.”

Capital expenditures include a QR226mn ($62mn) allocation for the development of a new small and medium size industrial area (see Table 2 below). Increased government outlays also includes a QR209mn ($57.4mn) allocation for the construction of a new international airport in Doha (which is estimated to cost over $500mn in total and received a $55mn allocation in last year’s budget) while in social sectors, expenditures are projected to increase most significantly in the area of education. Spending in the “education and youth” category is projected to rise by 158% with a total of QR418mn ($115mn) compared to QR162mn ($44.5mn) the previous year. Ten new schools will be built adding to 41 existing school construction projects. Part of the expenditure has also been allocated to improving the education system at the University of Qatar with an off budget item of QR360mn ($99mn) allocated to staff housing. Qatar has learnt from its neighbor Dubai about the economic benefits of hosting international events and is allocating QR200mn ($54.9mn) to developing its sports facilities, partly say local analysts, in preparation for the Asian Cup football tournament which is due to be held in the country in 2006.

The fact that Qatar’s spending is still set to rise by 14% (the same as in the previous fiscal year – see MEES, 9 April 2001) despite an uncertain oil price and political environment and the fact that this generates a deficit of QR1,819mn ($500mn) compared to a surplus of QR497mn ($136.5mn) last year, reflects the almost universal confidence in Qatar’s underlying economic fundamentals. Such confidence is further underpinned by the average Qatari crude price for FY2001-02. According to figures from Qatar National Bank (QNB) Qatari crude averaged $22.7/B last fiscal year, a good 37.6% higher than the oil price assumption of $16.5/B. “Nobody’s particularly worried,” says Muhammad Moabi, Senior Manager, Economics and Planning Department, at QNB, when asked about the deficit. “The government’s financial position in the last two years has been strong enough for substantial accumulated surpluses. Preliminary figures suggest a surplus of QR4.4bn [$1.2bn] for FY1999-2000 and the budgeted surplus for FY2001-02 is QR497mn [$137mn). I think it could exceed that and be between QR750mn-1bn [$206-275mn].” Mr Moabi also believes that financing the deficit will not be a major challenge given the government’s own assets and the fact that “banks have ample liquidity to lend to the government if they have to.”

Qatar’s natural gas exports have now started to kick in and generate the long awaited cash flow that is to service the country’s large debt burden. According to QNB, external debt as at 30 June 2001 stood at around $13.223bn or 76.5% of GDP having fallen from the end-2000 figure of 77.9% of GDP (despite a nominal drop in GDP of 1.8%). Domestic debt is estimated to have risen to $3.397bn from $2.965bn for the same period. Qatar is set to borrow further in the energy sector – international financiers are keenly awaiting the advisory mandate for the $2bn Q-Chem II petrochemical plant (for which the national oil company Qatar Petroleum and Chevron Philips Chemical Company are sponsors) along with Qatar Vinyl Company’s new $250mn plant and trains 3 and 4 of Ras Gas – but in many cases national debt is likely to be refinanced at more favorable terms. Moreover, as Mr Moabi points out, although LNG exports did not increase sufficiently in 2001 to compensate for the downturn in oil revenues and are not expected to rise significantly in 2002, by the end of 2003 they should total some 17.3mn tons per annum (compared to 12.9mn tons per annum at the end of 2002). “LNG exports will also be boosted in 2004 when Indian contracts and smaller ones with Europe kick in,” said Mr Moabi (see Table below).

Perhaps the only source of concern in the country is the state of its banking sector. The largest institution, QNB continues to report solid profits – it recently announced a net rise in income of 7.4% to QR527.3mn ($145mn) and saw its ratings upgraded during the course of 2001 by several ratings agencies. But not all domestic institutions were so successful with some still suffering from a decline in asset quality and the limitations of a small market. Al Ahli Bank of Qatar has reported losses of over QR100mn ($27.5mn) in the past two years (largely on the back of a significant rise in provisions) which led to a bid by the Central Bank of Qatar to purchase a 40-50% stake. According to the Saudi daily Asharq al-Awsat reporting on 26 March, the Central Bank of Qatar has offered QR38.8mn ($10.7mn), and local sources suggest that other banks were keen to acquire Al Ahli. In its latest Banking System Outlook, Moody’s Investors Services said that while the banking sector has a sound structure and satisfactory earning power, they are still heavily reliant on a difficult operating environment in which banks are held hostage to the state’s financing needs and suggested that asset quality and profitability are under pressure (MEES, 4 March). But analysts point out that in the main, problems in Qatar’s banking sector are institution specific and that other than the tail end of exposure to the troubled al-Mannai Corporation last year – much like the economy as a whole – banks are in a comfortable position.

Table 1

Qatari Budgets: FY1997-98 To FY2001-02

(QRMn)

*See Table below for disaggregated figures.

Table 2

Capital Expenditures By Category FY2002-03

Table 3

Qatar’s Contracted LNG Exports

(Mn Tons/Year)

Sales and Purchase Agreements (SPAs) with Japan include: Chubu Electric Power Co, Tohoku Electric Power Co, Tokyo Electric Power Co, Tokyo Gas Co,

Toho Gas Co, Osaka Gas Co, Kansai Electric Power Co and the Chogoku Electric Power Co,

SPA with Korean Company: KOGAS.

SPA with Indian Company: Petronet (5.0mn tons/year to Dahej and 2.5mn t/y to Cochin).

SPA with Italian Company: Edison Gas.

SPA with Spanish Company: Gas Natural Group.

HOA with Indian Company: Dakshin Bharat Energy Consortium.

HOA with Taiwanese Company: Tung Ting Gas Corporation.

Source: Qatar National Bank.

© Copyright MEES 2003.