QATAR'S economic performance remains stellar, supported by strong hydrocarbon prices and prudent government policies. The strong growth rate in 2005 resulted in Qatar's per capita income increasing by 14 percent to $43,000, the highest in the region and one of the highest internationally, while it promises to retain its position as the region's number one growth performer.
The outlook remains bright for 2006. Nominal GDP growth will remain above 30 percent, while real GDP growth is forecast to accelerate to 8.1 percent in 2006 on the back of increased gas production. Moreover, non-hydrocarbon growth will accelerate in 2006, driven by higher government expenditure and investment, which will drive demand in the economy.
Government spending is slated to increase by a substantial 44.4 percent in FY 2006/07 (April 2006-March 2007), up from an already dramatic spending increase of 31.5 percent in the previous fiscal year.
Meanwhile, public project and infrastructure spending will increase to 70.5 percent to reach QR20 billion. Infrastructure spending is particularly forecast to accelerate ahead of the 15th Asian Games. And even with higher spending levels, the budget will still realise a surplus of over 10 percent of GDP. Also supporting growth is the fact that many earlier investments are starting to bear fruit. Earlier this year, Qatar became the largest exporter of LNG, surpassing Indonesia. Going forward, there will be a further large increase in LNG (liquefied natural gas) production in 2007, with the completion of the fifth train of RasGas II, followed by the commissioning of the 1st train of Qatargas II at the end of the year. Furthermore, the Oryx GTL plant, which was inaugurated in mid- 2006, will be fully commissioned in early 2007.
Owing to higher gas production in 2007, real GDP is forecast to further accelerate to 8.5 percent. Looking further forward, LNG, oil, GTL and petrochemical production capacity are all set to increase markedly by 2010.
Around $100 billion worth of oil and gas projects are in the pipeline. Meanwhile, the Qatari private sector will increasingly benefit from this investment with the Ministry of Energy and Industry asking winners of major engineering, procurement and construction contracts to offer subcontracts to local firms.
Of course, the diversification efforts are not merely directly related to the economy (which themselves are being hidden by huge energy production related investments), but also to its financial position. Qatar has been looking to invest its surpluses into overseas companies (in both Europe and Asia). Finance Minister HE Yousef Hussain Kamal has indicated Qatar's state-owned investment fund will become increasingly active in acquisitions worldwide as its gas and oil revenues increase. Historically, overseas investments have been an area that Qatar has been behind the other Gulf States, given the emphasis on internal development. Looking ahead,widening the investment base will add greater robustness to the economy and investment income.
Meanwhile, the central bank is also looking to diversify its reserves. This is partially aimed at limiting the impact of the weakening of the US dollar against other major currencies on the value of its reserves. The central bank indicated earlier in the year that it plans to buy euros until they made up 40 percent of its reserves. Currently, the majority of the reserves are made up of US dollars. While in the past the central bank has purchased euros, this announcement suggests a more strategic policy shift, and possibly is in preparation of a floating single currency sometime after 2010.
As expected, there have been some growing pains linked with the strong performance of the economy. The large influx of expatriates has resulted in a shortage of housing and increased rental costs. Furthermore, the costs of building materials have also increased on the back of shortages in construction inputs such as cement.
As a result, inflationary pressure has been increasing and the cost of projects has been increasing. Meanwhile, there are indications from the travel sector that Qatar will face shortages in providing accommodation for the Asian Games. This will result in spectators staying in other regional cities and commuting in, which is not ideal in developing its position as a sporting hub in the region. Of course, growing pains are to some degree inevitable given the scale of Qatar's ambition.
However, increased export volumes and continued investment will result in Qatar remaining the region's fastest growing and richest economy.
By Steve Brice
© Qatar Today 2006
