NDS-2 hastens Qatar’s growth

With the government advancing its second National Development Strategy (NDS-2) that sees the private sector assume greater importance in driving diversification, Qatar’s economic growth has accelerated. NDS-2 also prioritises raising the average productivity of its local and foreign workers.

The country’s public finances and investor confidence have recovered since the 2017 blockade, after the government exercised spending restraint, injected liquidity into the banking system, rerouted impacted trade flows and benefitted from higher energy prices, NBK said in its ‘Qatar Macroeconomic Outlook 2019-21.’

Qatar’s growth is expected to accelerate to 2.6 percent in 2019 from 1.6 percent in 2018, driven by a recovery in hydrocarbon sector output (0.4 percent) and ongoing gains in non-hydrocarbon activity (4.4 percent) as the government’s expansive public investments bear fruit.

Over the medium term, as infrastructure projects related to the FIFA World Cup 2022 and work on the broader Qatar National Vision 2030 advances, non-oil growth is expected to moderate to around 4 percent by 2021. By this time, the private sector should have assumed a greater role in driving diversification through greater-value add—in sectors such as manufacturing, services, transportation and real estate—as per 2018’s Qatar National Development Strategy 2018-2022 (NDS-2).

The hydrocarbon sector, meanwhile, should get a welcome boost from the commissioning of the delayed $10bn Barzan gas production facility. This should raise gas output by 12 percent (2 bncf/d) and drive higher condensates and NGLs volumes. The most significant contribution, however, will come over the medium-to-long term when LNG capacity expands by over 40 percent to 110 mtpa, with the addition of 4 new LNG trains by 2024.

Qatar’s fiscal position has strengthened since the authorities began the process of fiscal reform and consolidation, like merging ministries, liberalising fuel prices etc., after the oil price downturn and as energy prices began to recover from their 2016 nadir. Qatar recorded a surplus in 2018 (2.2 percent of GDP); that should improve further to 3.2 percent by 2021 amid continued spending restraint and stable energy prices. The improvement in government finances will also have a positive bearing on public debt. While the authorities accessed the debt markets in 2018 and early in 2019—securing favorable rates amid considerable investor demand—to the tune of $24bn, debt levels are expected to fall from 53 percent of GDP in 2018 to 41 percent of GDP by 2021.

The external current account balance, which moved back into surplus in 2017 and reached an estimated 8.3 percent of GDP in 2018 should remain in surplus over the forecast period. Notwithstanding a slight deterioration in 2019 to 6.4 percent of GDP on softer oil and gas prices, the current account will benefit in the medium-to-long term from higher gas exports and returns from QIA’s overseas assets.

Currently, QIA’s assets are estimated to be around $320bn (167 percent of GDP), which is a sizeable buffer with which to absorb economic shocks such as the 2017 conflict. Moreover, as the current account has improved, official QCB foreign reserves have recovered, touching pre-conflict levels in March of $33.5bn (6.1 months of imports).

The banking sector has overcome the shock of non-resident capital flight and tighter liquidity associated with the 2017 blockade. Foreign deposits have returned (+29 percent y/y), private sector credit growth is at a near-three year high (+12.6 percent y/y) and overall liquidity has improved.

On the risk side, the NBK analysts noted Qatar faces a few challenges including continued sensitivity to volatile global energy prices and capital flows as well as increasing LNG competition, especially from Australia and the US, which could put downward pressure on prices.

Source from: The Peninsula