Estudios Económicos
Qatar

Qatar

Population 2.8 million
GDP 62,919 US$
A4
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 1.2 0.8 -4.5 2.9
Inflation (yearly average, %) 0.2 -0.6 -2.2 1.2
Budget balance (% GDP) 5.9 4.9 -4.5 -2.2
Current account balance (% GDP) 9.1 2.4 -0.6 2.6
Public debt (% GDP) 46.5 56.2 68.1 66.0

(e): Estimate (f): Forecast

STRENGTHS

  • One of the world’s biggest gas exporters
  • Low fiscal and external breakeven oil & gas prices
  • Strong financial buffers, public accounts
  • Organization of the 2022 World Cup set to support infrastructure investments
  • Very high GDP per capita that supports social stability

WEAKNESSES

  • Dependence on the oil & gas sector
  • Economic exposure to volatility in energy prices
  • Geopolitical uncertainty resulting from the Qatar-GCC conflict
  • Lower tourism revenues due to the blockade, COVID-19

RISK ASSESSMENT

The recovery in energy prices and the 2022 World Cup will support economic expansion

After an exceptional contraction in 2020, mostly due to the sharp reduction in the non-oil sector and the decline in energy prices, the Qatari economy is expected to record a gradual rebound through 2021. This recovery will be driven by the relative increase in energy prices led by the economic recovery in Asia (80% of exports in H1 2020), particularly in China, which attracted 13% of total exports. Qatar’s net liquefied natural gas (LNG) exports are estimated to increase by 4.9% in 2021 (from the 2020 level), to stand at 107 billion cubic meters (bmc) according to Fitch Solutions, compared to an estimated decline of 3.6% in 2020. Rising demand from Pakistan and Bangladesh should support this increase in LNG supply. Qatari tourism revenues (between 7 and 8% of GDP), already cut off by Bahrain, Egypt, Saudi Arabia and the United Arab Emirates three years ago, have deteriorated because of COVID-19. Qatar was among the Gulf countries that recorded the highest number of cases. As of early November 2020, total cumulative cases in Qatar reached 132,720, with over 160 daily cases, even though the fatality rate remains low with around 85 deaths per million inhabitants. After declining by 68% YoY in 2020, international tourism receipts are estimated to recover in 2021. The entrance of Qatar, on 1 September 2020, in the fourth phase of its reopening plan, which targets a gradual return of essential international travelling, will support the recovery. Nevertheless, a renewed spread of the virus would affect negatively not only the recovery in this sector, but the economy as a whole. Growth will be also be backed by government spending in infrastructure projects ahead of the 2022 World Cup. However, almost 90% of the big-ticket projects are now close to completion. Consequently, provisions for major projects (for not only the World Cup ones, but also others in healthcare, transportation and education) are to be cut by 20%. On the other hand, current expenditures related to the operating costs and the continuation of some World Cup projects will be increased by 4.7%. An implementation of the value added tax (VAT) in 2021 could weigh on consumer spending (25% of GDP), which was already hit by the uncertainty related to COVID-19’s evolution and job losses. Moreover, government-related entities have been told to reduce spending on foreign workers by 30% (salary cuts, layoffs, etc.) since June 2020. The government itself plans to decrease the allocation for salaries and wages by around 2% from the previous year.

 

Strong financial buffers and solid accounts underpin growth

Qatar benefits from one of the lowest fiscal breakeven oil prices across the GCC region, estimated at USD 38 per barrel for 2021 according to the IMF. The impact of lower energy prices and exports has been partially compensated by spending cuts from the government in 2020. Nearly half of fiscal revenues come from the hydrocarbon sector, so the relative recovery of energy prices in 2021, in the absence of a second wave of COVID-19, should support the budget. After the implementation of the excise tax on tobacco, energy drinks and special goods (100%), and carbonated drinks (50%) in 2019, the introduction of a 5% value added tax (VAT) in 2021 would also contribute to non-oil revenues, although there has not been any official announcement yet.

The current account balance is expected to record a small deficit in 2020, before returning into positive territory in 2021. The recovery in energy prices, coupled with a pick-up in demand, will support exports. Expansion of the gas production from the North and Barzan fields will also increase exports. The increase in joblessness among foreign workers will reduce remittances outflows, which stood at USD 17 billion in the first half of 2020 compared to USD 21.6 billion a year earlier. Qatar’s assets in its sovereign wealth fund were estimated at USD 330 billion (180% of GDP) in 2019 according to the IIF, and its international reserves, which stand at USD 56 billion as of August 2020, will ensure the peg with the dollar and provide a large space for the government to support economic activity.

 

Political stability set to persist despite conflicting foreign alliances

The high living standards, thanks to the large hydrocarbon revenues and general satisfaction regarding quality of life, reinforce political stability. So far, Qatar has managed to minimize the economic and political negative impacts of the blockade imposed by four Arab countries in 2017. Nevertheless, the divergences in foreign policy with other regional powers may become a source of instability in the future. Qatar has close relations with Iran, yet it also has the largest U.S. military base in the Middle East, which is not in line with Iran’s foreign policy. On the other hand, while some GCC countries normalized their relation with Israel, Qatar has ruled out any normalization. 

 

Last updated: February 2021

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