Qatar economy – strong savings base to neutralize oil slump effect

A Gulf Times news article opens with the following lines; ‘Sharp decline in global energy prices appear to have taken a heavy toll on Qatar, whose trade surplus shrank considerably in January this year as exports plummeted amid rising imports, according to official figures. The trade surplus of energy-major Qatar, which is fast powering its non-hydrocarbon segments as part of diversification, plummeted 48.3% year-on-year to QR18.54bn on substantially lower exports of crude, non-crude and natural gas, the Ministry of Development Planning and Statistics (MDPS) said.’ Another news item highlights Qatar crude output fall to 674,000 bpd in January 2015.

The scenario painted by the two news items may lead one into a false thought-process, spinning a yarn of imagined doom for an economy that historically has been dependent on hydrocarbon sector. But the real story is altogether different. The captions of Qatar Economic Insight 2015, a report released by QNB Group Publications, say: ‘Qatar is well-positioned to withstand the temporary decline in oil prices due to its strong macroeconomic fundamentals…Qatar has accumulated substantial wealth to withstand lower oil prices and continue its diversification process. With the highest savings rate in the world (56.0% of GDP), Qatar has built up significant fiscal and external buffers to withstand lower oil prices and continue its diversification process.’

With the existing oil reserves of 188 billion barrels and gas reserves of 872 trillion cubic feet, Qatar economy has had an easy sailing till now, amassing in the process sizeable external and fiscal reserves. Qatar economic managers have, however, learned quick lessons in the backdrop of violent oil price fluctuations. The diversification journey starting with the award of 2022 FIFA World Cup has gone through a few bumps and jolts but is still on with lot of determination on part of those at the helm. The diversification has been mainly in three non-hydrocarbon sub sectors: construction, services and transport. The non-hydrocarbon sector has recorded a double digit growth (11.9%) in 2014 vis-a-vis an overall growth of 6.5%. The CPI inflation has been kept around 3% of which 74% goes to domestic inflation and the rest to foreign inflation. The National Vision 2030 envisages Qatar as a knowledge-based economy.

World’s highest per capita GDP and savings rate put Qatar economy in an enviable position. The fiscal scares caused by the shrunk oil revenues are going to have, in the long term, an invigorating effect on Qatar economy. The estimated fiscal deficits for the coming years – 2.2% in 2015, 3.4% in 2016 and 3.7% in 2017 – are going to invoke larger government spending with lion’s share going to the non-hydrocarbon sector. The government has earmarked for investment spending in non-hydrocarbon sector an amount of $182 billion for the years 2015 to 2017. This spending for 2014 is estimated at $58.7 billion.

A high savings rate coupled with a low debt mass present an ideal scenario for emerging economies. The Austrian school of economics views debt-based investment as a sure way to unsustainable economic growth and rising inequality of incomes. High debt servicing and interest payments understate growth on the one hand and make the economy subservient to the lending organizations on the other. Investment based on savings always carries less risks and more rewards. With the highest savings rate in the world and a manageable burden of debt, Qatari economic managers’ confidence in their well-founded and vibrant economy doesn’t look misplaced.