31 July 2016
DOHA: Qatar is estimated to run a budget deficit of $8bn, equivalent to 5 percent of GDP in 2016 -- the smallest among the GCC countries. Yet, given that the country's budget planners calculated oil at $48, Qatar's deficit may increase further, latest World Bank report on crashing oil prices noted.
The World Bank's "Mena quarterly economic brief for July" noted the group of Gulf Cooperation Council (GCC) countries lost $157bn in oil revenues last year and is expected to lose another $100bn this year. In the Mena region, Saudi Arabia has depleted $178bn in reserves, followed by Algeria ($28bn), and Iraq ($27bn) in 2015.
The World Bank report which acknowledged Qatar's ambitious reform goals noted the country was restructured in January 2016 as part of the plan to counter the impact of the oil price shock to its economy. "Austerity measures are already being taken to counter the wasteful spending, overstaffing and lack of accountability".
The report predicts that the world oil market will work through its current oversupply and rebalance in early 2020 at market-clearing prices that will be in the range of $53 to $60 a barrel, close to the marginal cost of the last producer, US shale oil producers. This will have have important implications for the economies of the Mena.
Persistently low oil prices are bringing change to Mena economies. Governments in the region are taking measures long considered impossible such as imposing taxes, eliminating fuel subsidies, and reducing public sector jobs and salaries.
Almost every oil-exporting country is cutting subsidies to fuel, electricity, gas, and water.
Many are cutting public spending and some, like Algeria, are freezing public-sector hiring. Oil importers such as Morocco, Egypt, and Jordan, who started reforming subsidies in 2014, are shifting from a fixed domestic price of fuel to one that is tied to the world price. Morocco and several GCC countries have introduced energy-efficiency improvements, lowering carbon emissions.
These reforms are likely to transform the old social contract, where the state provided citizens with fuel and food subsidies and public-sector jobs, to a new one where the state promotes private-sector job creation and empowers citizens to make their own consumption choices.
On Qatar, the report said: "To finance Qatar's budget shortfalls, the country has recently implemented measures such as hiking utility rates, doubling fines for wasting water, and increasing the cost of Qatar's postal services for the first time in eight years.
On January 14, 2016, Qatar's state-owned fuel company, Woqod, announced a 30 percent hike in gas prices, causing a litre of unleaded gas to reach $0.36. The subsidy cut went into effect only hours after the announcement. The last time Qatar raised gas prices was in 2011."
The report "Whither Oil prices", co-authored by Shanta Devarajan & Lili Mottaghi said more austerity measures are expected in Qatar. Qataris are expecting cuts in electricity subsidies later this year. New cuts and price increases will likely fall hardest on expatriates.
According to the World Bank report, officials slashed the Qatar Foundation budget by 40 percent and made significant cuts at Western academic institutions in Education City. Last December, Sidra Medical and Research Centre cut hundreds of jobs and officials have put the brakes on plans to roll out a national health care scheme.