Budget deficit pegged at $46.5 bn in 2016
Qatar announced the state budget for fiscal 2016, which is based on the Qatar National Development Strategy 2011-16. The budget is aimed at achieving equilibrium between revenue and expenditure to enhance financial stability and economic growth in the country. The budget considers that oil and gas production are at stable levels and non-oil sectors are spearheading economic growth at an estimated 9.5% in 2015. The government is visibly attentive to developing the nonoil sector, especially the private sector.
Qatar is the first country among the Gulf States to present its budget for 2016 which is its first in almost two years. The last budget announced in March 2014 was extended to December 2015 from March 2015 after the government decided to move the fiscal year end to December from March. The change was done keeping in view the private sector practice. Markets and investors were keenly anticipating this budget announcement as they continue to analyze the finances of this wealthy oilexporting region amid slump in oil prices.
The budget validates the government’s keenness to continue to implement its sustainable development program with focus on major projects in the health, education, and infrastructure sectors, along with projects related to the hosting of the FIFA World Cup 2022. The cost of the ongoing government projects is QAR 261bn, excluding private sector and energy sector projects. This includes projects worth QAR 87bn, QAR 54bn, QAR 4bn, QAR 30bn, QAR 17bn, and QAR 7bn in the transportation, infrastructure, sports, water and electricity, education and healthcare sectors, respectively.
The anticipated revenue for fiscal 2016 is QAR 156.0bn, compared with QAR 225.7bn in the previous fiscal year. The decline in revenue is due to a reduction in oil price assumption to USD 48 per barrel from USD 65 per barrel in the previous fiscal year. The breakeven oil price for Qatar was lowered due to a drop in oil and gas prices in the global energy markets, which are down by over 50% compared with the prices in 2014. The projected expenditure is QAR 202.5bn in 2016, compared with QAR 218.4bn in the previous fiscal year. The projected budget deficit is QAR 46.5bn for 2016.
Qatar would finance the deficit by issuing debt instruments in the local and international financial markets. Furthermore, Qatar accumulated strong financial reserves at Qatar Central Bank (QCB) and made sizable investments through Qatar Investment Authority (QIA) during the period when oil and gas revenue was high. These reserves can be used in case of deficits. However, as of now, the government is keen to maintain these reserves.
Allocations for the health, education, and infrastructure sectors totaled QAR 91.9bn, representing 45.4% of the expenditure in the 2016 budget.
Funds allocated to the education sector remained at QAR 20.4bn. The government plans to expand the Qatar Foundation for Education, Science and Community Development and the Qatar University by building a new hostel, students’ affairs building, and campuses for faculties of engineering, education, law, medicine, and medical sciences, and a laboratory for the faculty of sciences. Other education projects include the establishment of 18 schools and 6 kindergartens during 2016.
Funds allocated to the healthcare sector stood at QAR 20.9bn. Funds were allocated for the Sidra Medical and Research Center, as well as for the completion of Hamad General Hospital and Hamad Medical City. More than QAR 850mn is allocated to establish five health centers, in addition to funds to establish the Cancer Treatment Center, Specialized Clinics Center, Biomedical Research Center, and premises for emergency medical services and other health projects.
Allocations to infrastructure projects totaled QAR 50.6bn, representing 25% of the expenditure. Funds were allocated for rail projects, a new port in Doha, large road projects such as the new Al Rayyan road and Al Khor road, and the development of the fifth ring road in Doha.
The government, in its 2016 budget, allotted funds worth QAR 2bn through Qatar Development Bank as housing loans for Qatari nationals. This represents a 25% upside from QAR 1.6bn in 2015. Furthermore, funds were allocated to develop a large number of land plots including infrastructure and utilities-related work for about 3,700 land plots in different parts of Qatar. The government has undertaken construction work to develop about 4.4mn sq. m. of land, which will likely be finalized in 1Q17.
Qatar lowered its 2015 economic growth estimates to 3.7% from 7.3% way below IMF’s estimate of 4.7% for 2015. The revision in forecast was in line with low crude oil price estimate of USD 52.4 per barrel in 2015 compared to an earlier estimate of USD 56.0 per barrel. Oil price estimates for 2016 and 2017 have also been lowered and crude oil production in 2015 to be 6% lower than that in 2014.
Qatar expects low hydrocarbon revenue to create a fiscal deficit of nearly 4.8% of the GDP in 2016, compared to an estimated fiscal surplus of 1.7% of the GDP in 2015. However, the country estimated that real GDP would increase to 4.3% in 2016 and fall to 3.9% in 2017, as gains from higher hydrocarbon production would be offset by a slowdown in construction spending as infrastructure spending would peak before the 2022 FIFA World Cup. The country anticipates that a sustained mismatch in crude oil supply and demand could require a larger adjustment in the government’s spending plans. This adjustment, along with the anticipated recovery in crude oil prices, would help reduce the fiscal deficit in 2017.