World Economy

Qatar to Face Budget Deficit for 3 Years

Qatar to Face Budget Deficit for 3 Years Qatar to Face Budget Deficit for 3 Years

Qatar’s government expects to run a budget deficit for at least three years as low natural gas and oil prices weigh on its revenues, the ministry of development planning and statistics said on Saturday.

In a long-term report on the Qatari economy, the ministry forecast a fiscal deficit of 7.8% of gross domestic product this year, which would be the first deficit in 15 years and bigger than the deficit of 4.8% predicted for 2016 in the ministry’s last report published in December, Arabian Business reported.

The deficit is expected to total 7.9% of GDP next year before shrinking to 4.2% in 2018, the ministry said.

Qatar, the world’s biggest liquefied natural gas exporter, is the richest of the Persian Gulf Arab states but like its Arab neighbors (Saudi Arabia, Kuwait, the UAE, Bahrain, and Oman), it has been pushed into austerity measures this year in an effort to stabilize its finances.

More austerity will be needed to achieve the ministry’s projections, the report said.

“This estimate assumes that the government pares recurrent spending and caps growth of capital spending below previously programmed levels; that there are effective cost reductions in the hydrocarbon sector, which support transfers to the budget; and additional non-oil and gas revenues accrue to the budget.”

Some of the projected improvement in the fiscal balance depends on a hoped-for rise in energy prices; the ministry assumed the average crude oil price would climb to $48.91 a barrel in 2018 from $45.49 in 2017 and $37.88 this year.

The ministry predicted Qatar’s economy would grow 3.9% this year, down from a previous 4.3% forecast. It expects growth of 3.8% next year and 3.2% in 2018.

Liquidity in the Qatari banking system has tightened and money market rates have risen because of reduced inflows of gas and oil money. The ministry said the central bank might take several steps to reduce pressure on liquidity.

It could cut official interest rates, continue to suspend domestic treasury bond issuance while resuming its suspension of treasury bill issues, or adopt unconventional measures used by central banks in other countries such as direct purchases of commercial bonds and extraordinary loans to, or equity injections in, individual banks, the ministry said without specifying which steps were likely to be chosen.

In early 2014, the central bank announced a new loan-to-deposit requirement for banks of 100% by the end of 2017. The deposit side of the ratio includes only customer deposits and not long-term wholesale funds, which have recently been the primary source of funding for banks.