Qatar aims to fully finance the budget from 2020 onwards from its non-hydrocarbon revenues, Samba Financial Group has said in a report. Qatar’s public finances will ‘remain strong’ even under lower oil and gas price scenarios over a five-year period, Samba said.
The country’s National Development Strategy (NDS) does a good job in trying to frame the resource envelope available to Qatar and presents additional scenarios involving lower oil and gas price assumptions.
Under the lower oil scenario, prices are reduced by 14% to an average of $74/b for 2011-16 relative to the baseline assumption of $86/b, while in the lower gas price scenario prices are reduced by 30%.
Under both, Qatar’s public finances remain healthy, albeit reduced, and the impact on economic activity is viewed as manageable.
This conclusion is shared by the IMF, which notes that fiscal sustainability in not an issue in the medium term, and has calculated that under current policies, growing income from Qatar’s sovereign wealth fund, the Qatar Investment Authority (QIA), combined with projected tax revenues would cover 73% of total budget expenditure by 2015/16. Qatar aims to fully finance the budget from 2020 onwards from its non-hydrocarbon revenues.
The NDS does not directly address external borrowing requirements but does indicate a growing debt burden, which tops 90% of Qatar’s GDP by 2016.
Under conventional debt analysis, this level of debt would begin to raise concerns and it is notable that public debt has risen steeply in recent years.
“Proper analysis is hampered by limited data, but assessments of debt service requirements suggest that Qatar’s debt burden is manageable and that there is little roll over risk. In addition, and perhaps most pertinently, continued large current account surpluses will allow for a sustained build up in the country’s external assets (the bulk held by the QIA) ensuring they continue to exceed Qatar’s external obligations by a wide margin,” Samba said.
That said the authorities will need to monitor debt levels carefully and ensure that activities of government owned companies do not lead to concerns, the report said.
The debt problems in Dubai provide a salutary example of what can go wrong. And while (unlike in Dubai) the state can afford to bail out its enterprises; it would not be the most productive use of funds. Establishing a debt management office will thus be an important step to help ensure prudent and productive investment.
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