World Economy

Qatar Non-Oil Growth to Slow

Qatar Non-Oil Growth to SlowQatar Non-Oil Growth to Slow

Growth in Qatar’s non-oil economy is forecast to slow this year to 6% from an estimated 8% last year, according to Fitch Ratings.

The ratings agency said in a statement that average non-hydrocarbon growth in Qatar has been 10% over the past five years, Arabian Business reported.

It said the slowdown will be a result of a less benign fiscal environment, where a contraction in current spending and a focus on fiscal efficiency leads to a slowdown of both private and public consumption growth.

Hydrocarbon growth will pick up to 2.2% in 2016, after contractions of 3.2% in 2015 and 1.5% in 2014. This will raise overall growth to 4.1% in 2016 from 2.2% in 2015, despite the slowdown in non-hydrocarbon growth, Fitch added.

Fitch Ratings affirmed Qatar’s long-term foreign and local currency issuer default ratings at ‘AA’ with a stable outlook, saying the ratings reflect Qatar’s large sovereign assets, the government’s fiscal adjustment efforts, a large hydrocarbon endowment and one of the world’s highest GDP per capita.

The agency added that it expects the government to post deficits of around 10.4% of GDP (QR61 billion or $16.7 billion) in 2016 and 2.7% of GDP (QR18 billion) in 2017, as lower oil and gas prices hit revenues.

“Qatar’s hydrocarbon dependence is a key rating weakness, with oil and gas extraction averaging more than 50% of GDP over the past five years and hydrocarbon-backed government spending accounting for a further 30% of GDP,” the statement said.

Under its baseline oil price assumptions ($13 per barrel lower than the government), Fitch said it expects total government revenue to fall 38% to a trough of QR141 billion in 2016 before recovering to QR179 billion in 2017.

“We expect expenditure to fall 7% to around QR203 billion in 2016 and a further 3% to QR197 billion in 2017, underpinned by reductions in current expenditure other than salaries and wages. Measures to reduce current expenditure have included reductions to fuel and electricity subsidies, as well as travel and office expenses for government employees,” Fitch added.

The activities of state-owned organizations such as Al Jazeera and Qatar Museums have been scaled back while the number of government ministries has been reduced to 15 from 18, it said.

Fitch added that the government is also taking steps to increase non-oil revenues, focusing on indirect taxes and levies. It has increased stamp duty and plans to levy additional taxes on tobacco and energy drinks starting in 2017.

It plans to start applying VAT at a rate of 5% in 2018 on all goods and services, excluding selected food and medical items, potentially adding QR12-15 billion per year to the government’s coffers.