The deterioration in Qatar's fiscal position in financial year 2014- 15 (April-March) on the back of the lower hydrocarbon prices was limited by a contraction in government spending, but the country is expected to see a sharp narrowing in the surplus and face a deficit in 2016 according to forecasts by Abu Dhabi Commercial Bank (ADCB).
The government had announced an interim budget for April to December 2015 as it moves to a calendar year for public finances (starting January 1, 2016) from a fiscal year (April-March). The 2014-15 budget has been extended by nine months (April-December 2015). The extended budget assumes an oil price of $65 per barrel, unchanged from the 2014-15 budget.
"Revenues from the interim ninemonth budget are estimated at QAR169.3 billion, while expenditure has been slated at QAR163.8 billion, translating into an estimated budget surplus of QAR5.5 billion. We consider the budget's oil price assumption to be slightly optimistic for the ninemonth period," said Monica Malik, Chief Economist of ADCB.
According to forecasts by ADCB economists, Qatar's economic outlook remains strong, despite energy prices being significantly lower. They expect real gross domestic product (GDP) growth to accelerate to 5.1 per cent in 2015 and 5.9 per cent in 2016, with gas output to increase moderately. The real non-hydrocarbon GDP is expected to remain robust in 2015 and 2016 as progress is made on investment programme.
Despite strong GDP outlook, the country faces medium-term risks on both the external and domestic fronts. Externally, it has limited potential for gas revenues to rise, with production flat from 2018 and further downside risks to the price on the back of rising global supply.
While hydrocarbon output growth in nominal terms is expected to contract sharply on the back of the substantially lower energy prices, the country is expected to face relatively weaker contraction in nominal GDP compared to the other GCC countries due to Qatar's long-term gas agreements.
Despite sharp fall in oil prices, the value of projects awarded in Qatar was solid in the first half of 2015 although
the lower compared to the same period last year. "We expect the current focus on essential infrastructure (such as transportation, real estate, and logistics) to reduce supply constraints and bottlenecks before construction related directly to the FIFA 2022 World Cup begins in earnest. We forecast investment and construction activity to peak in 2017-2020, likely resulting in stronger real non-hydrocarbon GDP growth," said Malik
Analysts have warned of risks related to infrastructure overcapacity, as well as low investment returns, following the World Cup. However, some measures have already been taken to reduce overcapacity risks, including reducing the number of stadiums and considering more flexible accommodation options.