PREvIEWING QATAR’S RECENTLY DELAYED 2012 NATIONAL BUDGET ANNOUNCEMENT Many were eagerly awaiting Qatar’s much-anticipated State budget for the 2012 fiscal year, which is usually announced on April 1. However, the cabinet decided to push back the budget announcement to the end of May because of changes to the governments’ accounting system and the way it prepares budgets. Karim Nakhle looks at the unexpected delay by the Qatari government that is without a doubt in the interest of the country’s economy and its people.
ccording to a statement by the Qatari government, during the postponement period the government will operate under the terms of the current fiscal year’s budget. In future, budget estimates will be given for three-year periods and then ratified each year during the period. Qatar booked only a modest budget surplus of 2.9 percent of gross domestic product (GDP) in the 2010/2011 fiscal year, as spending soared 24 percent.
In its 2011/12 budget, Qatar originally planned spending worth QR139 billion (US$38.4 billion) and a surplus of QR22.5 billion, or 4.9 percent of GDP. Partly in response to political unrest elsewhere in the Middle East, Qatar hiked basic salaries and social benefits for the state’s local civilian employees by 60 percent last September, while military staff received 50 to 120 percent rises. The International Monetary Fund (IMF) estimated such extra social spending would add US$1.6 billion (QR5.8 billion) to expenditure in 2011/12.
An economic adviser to the country’s Emir HH Sheikh Hamad bin Khalifa Al Thani said recently that Qatar’s budget spending for the 2012/13 fiscal year will be much higher than in 2011. Nevertheless, the belief is that Qatar is expected to set a ‘conservative’ government budget for this fiscal year. It will be roughly the same size as the prevailing budget, with a small increase of five to seven percent, as it has not indicated that it plans any further rise in social spending, and is expected to keep capital expenditure at 40 percent of the total expenditure (in the medium term).
FUELLING THE ECONOMY Qatar may have a small population, but it has huge plans for infrastructure development in the next 10 years, funded by its hydrocarbon exports. In March 2011, the Qatari government unveiled its National Development Strategy 2011-2016. This met most expectations, since the GDP real growth remained very high in 2011, reaching over 18 percent (since oil prices exceed the US$70 mark (QR254) per barrel), but slowed down thereafter following the completion of the liquefied natural gas (LNG) programme and mega projects such as Shell’s Pearl GTL facility. Oil and gas exports account for about half of Qatar’s GDP. The country, the biggest exporter of LNG, was the world’s fastestgrowing economy for the past two years, according to International Monetary Fund data. The cabinet has not yet decided on an oil price for the 2012/13 fiscal year budget,
40 percent of Qatar’s 2011/12 spending budget was allocated to infrastructure projects, higher than in the previous year. which is to be released by June, but Qatar Petroleum, the country’s state-run energy company, based its budget for this year on an oil price of US$65 (QR236) a barrel. In 2010, Crude averaged US$95 (QR346) a barrel on the New York Mercantile Exchange. Qatar based its budget for that year on a price of US$55 (QR200) a barrel. As the current Crude average is fluctuating at an all time high in excess of US$105 (QR382), Qatar Petroleum based its budget on an oil price of US$65 (QR236) a barrel
– a reasonable figure, which will also be a benchmark for the Qatari budget. MANAGING RISK In November 2011, Qatar raised US$5 billion (QR18 billion) by issuing sovereign bonds internationally. The Qatari government seeks to keep inflation at 3.5 percent by issuing bonds and treasury bills, although Qatari authorities have not indicated plans for any further sovereign issues.
The Qatari national budget is in part based on estimating an average price for a barrel of crude oil for the coming year.
Qatarâ€™s current construction boom is being fuelled in a large part due to massive infrastructure spending by the state.
The Qatari government seeks to keep inflation at 3.5 percent by issuing bonds and treasury bills. 44
Furthermore, a surge of Qatari debt issues could be expected from banks, since many banks who have already issued their prospectus are lined up, and hoping for at least US$20 billion (QR73 billion) worth of bonds or medium-term notes to be issued in the near future, to ease liquidity in the marketplace.
The construction frenzy ahead of the World Cup 2022 also helped propel annual lending growth to the real estate sector to 95 percent in October, the fastest pace since at least 2008. It slowed to a still-fast 49 percent in December. The sector is booming, and there are no talks or speculations about a real estate bubble building up, because eventually most of the credit that the banks are lending is to public enterprises, which are running, developing and managing the sector. But the main point remains about disclosures and transparencies, since the public is not fully aware of what plans these ‘public’ enterprises have for the future, or how much excess supply in real estate there is, or whether they are bringing any new real estate. These topics require greater clarity. In a visit to Qatar recently, the IMF mission had underlined the need to collect data in Qatar’s real estate sector to facilitate risk management by banks, since lending to that sector had been rising rapidly. The IMF also encouraged banks to develop a Corporate Governance code for the real estate developers, as this would contribute to the prevention of excessive risk-taking in the sector. SPENDING THE BUDGET In 2011, 40 percent of 2011/12 spending budget was allocated to infrastructure projects, an even higher amount than in the previous year. Qatar plans to invest between US$160 billion (QR582 billion) and US$170 billion (QR618 billion) on infrastructure and oil and gas projects in the next 10 years. In 2011 projects worth US$85 billion (QR309 billion) were already under development with other projects worth US$130 billion (QR473 billion) planned for the next three years. Many of these projects were planned before the World Cup 2022 win and are integral to realising Qatar’s National Vision 2030. The World Cup 2022 gives an added impetus for existing infrastructure plans by providing a hard date by which they must be operational. Specific projects planned included a new national railway system, including a Doha metro, light rail, freight and high speed lines US$25 billion (QR91 billion) slated for completion in 2025; the completion of the New Doha International Airport US$10 billion (QR36 billion); an entire new port US$7 billion
GCC BUdGETS IN 2012 The annual budgets of Gulf Cooperation Council (GCC) countries hold special significance because every state in the bloc is an important player in its country’s social and economic fields, as fiscal spending remains the principle engine for economic growth. Therefore, an air of expectancy pervades the business community and the economic sector every time a GCC state is about to release its annual budget. The figures shown in these budgets often point to the direction of economic growth in the region, particularly as the funding of many infrastructure projects is detailed in the budgets. Ever since oil prices began their bull run in 2003, GCC countries never recorded a budget deficit. That oil revenues constitute 80 to 90 percent of budgetary revenues explains this fact. In contrast, budget deficits were a regular feature in Gulf economies almost throughout the 1990s. Thus, oil revenue supported fiscal spending holds immense importance for GCC countries, as whenever its member states get any indication of a prospective rise in oil prices they increase their spending. On an average, oil prices stood at US$100 (QR364) per barrel throughout 2011 and this high price facilitated a hike in government spending in all GCC budgets by 19.3 percent, which amounted to US$359.1 billion (QR1.3 trillion) in GCC public spending in 2011, compared to US$301.1 billion (QR1 trillion) in 2010.It is noteworthy that real surpluses in GCC budgets doubled in 2011 to reach US$106.7 billion (QR388 billion) – compared to the surpluses recorded in the previous year that amounted to US$55 billion (QR200billion) This was despite the increase in total spending of GCC countries by 19.3 percent, as mentioned earlier. This can be largely attributed to conservative oil prices used in the revenue estimates by GCC governments while preparing their annual budgets. For instance, the future oil price estimated by GCC members varies from US$55 (QR200) to US$70 (QR254) per barrel, while the real oil price on average has been much higher than that. Furthermore, rising production in some GCC countries has played a significant role in raising oil revenues, and
thereby public revenues. While the total stated estimates of GCC budgets for 2012 indicate the possibility of a reduction in government spending by 5.5 percent this year below the total of actual spending in 2011, as is shown in the above table, it is expected to exceed the announced figures. In fact, this has been the trend in the last two years. It is also noteworthy that GCC countries have thus far evinced their interest and willingness to carry out the Gulf railway network, whose total cost is projected to reach US$25 billion (QR91 billion). This railway network is expected to be complete by 2017. Such expectations of large increases in public spending are encouraged by expectations of high oil prices, which remained stable above the US$100 (QR364) per barrel level. Most forecasts suggest that oil prices will remain high for a variety of reasons this year. Furthermore, most GCC countries have announced some increases in oil production in early 2012, which will naturally boost revenues for these countries, and will encourage increases in all fields of spending. In this context, GCC governments can benefit from the UAE federal budget experience, which in the last five years succeeded in making its sources of revenues more diversified and less dependent on the oil sector. This diversification process makes the UAE experience so important that it deserves to be studied and utilised amid efforts aimed at diversifying the sources of financing GCC budgets. The GCC budgets are particularly important not only for supporting economic growth, but to secure stability and prosperity in GCC economic and social conditions in general.
The UAE has set an example for the rest of the GCC when it comes to setting a diversified national budget less dependent on oil and gas .
ECONOmIC BAROmETER QQP - vertival halfpage 8.3x23cm.pdf
The belief is that Qatar is expected to set a ‘conservative’ government budget for this fiscal year, roughly the same size as 2011. (QR25 billion) being constructed on a “green field” site; construction of the Qatar - Bahrain Causeway US$4 billion (QR15 billion); the huge Musheireb urban redevelopment US$5.5 billion (QR20 billion) in the heart of Doha; and a planned Doha Bay Crossing US$1 billion (QR3.64 billion) linking the new airport with projects in the northern part of Doha. In addition, there was a major programme for building and expanding roads US$20 billion (QR72 billion), water and wastewater facilities. The Barzan Gas project was the subject of a joint venture agreement with ExxonMobil that will supply gas for domestic use. For the World Cup 2022, nine new state of the art stadiums will be built with capacities of at least 43,000 each and three existing stadiums will be refurbished at a cost of US$5 billion (QR18 billion). An additional 90,000 hotel rooms are planned. While the oil and gas sector and Independent Water and Power Producers (IWPP) sector have seen some very large project financings in recent years, infrastructure procurement continues to be publicly financed. The government is financing both the new airport and the port. Unfortunately, Public Private Partnership (PPP) has not yet reached the shores of Doha, putting a heavy financial burden on the government which has to bear a huge bill on a monthly basis. The 2012/13 budget will largely reflect the country’s ambitious expansion plans envisaged in Qatar Vision 2030 by focusing on infrastructure development, with a substantial amount going toward education, health and housing projects. The Ministry of Economy has sent guidelines to different ministries and concerned government agencies detailing how they should approach their budget proposals, by emphasising how they are going to utilise the expected budget allocations to realise the development plans envisaged in Qatar Vision 2030. The proposals have already been submitted, and the new budget of 2012/13 will be unveiled in May 2012, accordingly. According to the National Development Strategy, Qatar plans to invest over QR130 billion in 2011-2016 through its state-linked companies, including about QR100 billion by Barwa Real Estate Company and Qatari Diar for residential and business construction projects. Qatar Petroleum and its subsidiaries are expected to spend a further QR88 billion. State infrastructure spending will likely exceed US$67 billion (QR243 billion), including roads, port, power and water. After concluding its annual consultation with the Qatari authorities, the IMF said that Qatar’s economy is set to slow next year, but the country would increase its spending to stabilise its economy and insulate itself from the possible impact of the global slowdown expected in 2013. TheEDGE