qatar stadium

As Qatar prepares to host the World Cup later this year, the country’s economy is set to receive a major windfall from higher gas prices. Kit Gillet reports. 

This year is gearing up to be a big one for Qatar. The country is set to host the Fifa World Cup in November and December, which is expected to boost the country’s reputation as a tourist destination with more than a million visitors attending the tournament. Meanwhile the conflict in Ukraine has once again highlighted the importance of the Gulf nation’s vast natural gas resources.

Soaring oil prices around the world are set to bring a windfall to Qatar, which has a population of less than three million and is already one of the richest countries in the world on a per-capita basis. Qatar’s sovereign wealth fund, the Qatar Investment Authority, now manages more than $400bn in assets.

“The Ukraine conflict is first and foremost a human tragedy, but the resulting higher liquified natural gas (LNG) prices will benefit Qatar, and we continue to see strong government fiscal balances that allow further investment in the economy and diversification,” says Joseph Abraham, group CEO of Commercial Bank of Qatar.

Energy crisis an opportunity

The global energy crisis is largely good news for Qatar, with countries across the world (and especially those in Europe) now actively seeking alternative gas supplies following Russia’s invasion of Ukraine. In late March, German vice-chancellor Robert Habeck visited Doha, as the European powerhouse looked to secure alternatives to its dependence on Russian gas. Many others will likely soon be making the same journey.

Timing wise, the global energy crisis has also come at a good moment for Qatar. The country was the world’s biggest LNG exporter in 2021, surpassing the US and delivering 110.2 billion cubic metres of gas equivalent, according to S&P Global. That number is set to rise significantly in the coming years, with billions of dollars going into expanding the country’s overall capacity.

Qatar’s North Field, one of the biggest non-associated natural gas fields in the world, is currently undergoing a massive $28.75bn expansion project, with state-owned Qatar Energy targeting an increase in LNG production capacity from 77 million tonnes per annum (mtpa) to 110mtpa by the end of 2025 and 126mtpa by 2027. As of 2021, Qatari LNG exports accounted for 21% of the global market.

“The geopolitical fallout from the war in Ukraine means that Qatar’s position as a top LNG exporter will be further cemented as Europe looks to replace Russian gas and Qatar’s expanded production capacity comes online,” says Tarik Yousef, a non-resident senior fellow at the Brookings Institution, based in Doha.

“The decision to expand capacity, which seemed unwise a few years ago given the required costs and projected acceleration in the energy transition, has proven prescient,” he adds.

Post-Covid recovery

Qatar has also largely bounced back from the coronavirus pandemic, aided by the Qatari authorities’ strong economic support measures in the early days of the pandemic, which included putting in place a QR75bn ($20.5bn) stimulus package and enforcing a moratorium on the repayment of bank loans. The moratorium has subsequently been extended several times.

In March, the International Monetary Fund (IMF) said that the Qatari authorities’ response to the pandemic had helped to minimise the negative impact of the pandemic, and that the strength of the recovery would allow a “successful exit from the blanket loan moratorium in the near future”.

“Amid rising hydrocarbon prices and a favourable fiscal outlook, the authorities’ commitment to medium-term fiscal consolidation is particularly welcome,’ said Ran Bi, an IMF senior economist, in a statement.

In April, Fitch Ratings affirmed Qatar’s long-term foreign-currency issuer default rating (IDR) as ‘AA-’ with a stable outlook. It pointed to the fact that the state is supported by large sovereign net foreign assets, one of the world’s highest ratios of gross domestic product (GDP) per capita, as well as a flexible public finance structure and a favourable outlook for debt reduction. These are offset slightly by high government debt-to-GDP, it said, and a heavy dependence on revenue from hydrocarbons.

The rating agency predicted a budget surplus for Qatar of about 15% of GDP in 2022, compared to 2.4% in 2021, aided by a big jump in oil and gas revenue, with the assumption that Brent oil will average $100 per barrel over the rest of the year. This, the rating agency said, could see the country’s debt-to-GDP ratio drop from 81% in 2021 to 67% in 2022. “The subsequent debt path will depend on how the government chooses to deploy its fiscal surpluses,” it added.

Overall, Qatar’s GDP is expected to grow by around 3.2% this year, according to Fitch, up from 1.6% in 2021, driven by non-oil growth of about 5%. Others have predicted faster growth; according to Citigroup, the $200bn Qatari economy is set to grow by around 4.4% this year, which would be its fastest rate since 2015.

Rising inflation

Even so, the world is looking like a less secure place these days, with rising global inflation and talk of recessions. In early May, the Qatar Central Bank raised its main interest rates by 50 basis points, in line with the US Federal Reserve.

Still, the strong fiscal position of Qatar, and the expected bump in earnings from natural gas, gives the Qatari state plenty of leverage to support its economy as it comes out of the pandemic into this new reality.

“The government is in a good place to assist companies coming out of the pandemic,” says Gudni Stiholt Adalsteinsson, acting CEO of Doha Bank, who points to the country’s strong foreign exchange and hard currency positions, which are the equivalent of more than 14 months of Qatari imports.

“We are also seeing strong improvements in other sectors of the economy,” Mr Adalsteinsson says. “Qatar tourist numbers saw a seven-fold increase in the first quarter of 2022, compared to the previous year. The travel and tourism industry contribution to GDP is [now] expected to grow from 7% to 12%.”

World Cup glory

Much of Qatar’s focus in recent years, outside of dealing with the pandemic, has been on the 2022 Fifa World Cup, which it will host in November and December. It is the first Middle Eastern country to hold the tournament.

Qatar would have wished for a less controversial lead up to the World Cup, with much of the international coverage focusing on the abuse of workers’ rights and the number of fatalities on construction sites — often migrant workers. It will now be hoping that the focus turns to the tournament itself. The Qatari government is expecting a $20bn economic boost from the tournament, equivalent to roughly 11% of the country’s 2019 GDP.

“The most important legacy of the World Cup is raising global awareness of Qatar as an investment and tourist destination,” says Commercial Bank’s Mr Abraham.

At the same time, the World Cup has acted as a catalyst for investments. Since Qatar was awarded the World Cup in 2010 it has spent an estimated $200bn on infrastructure projects, according to various analyses, including 12 new stadiums, a new metro system, roads, malls and various other mixed asset developments.

This has helped to stimulate the economy, but raises questions about what will happen after the tournament ends. A pipeline of ongoing projects should continue to support economic growth in the near future, but there is still expected to be a notable slowdown, which could have strong economic implications.

“Beyond the organisation of the tournament, the more important economic concern is what happens the day after the World Cup,” says Mr Yousef.

“After the completion of massive infrastructure projects, large numbers of expatriate workers will likely leave, whether they are directly or indirectly linked to the World Cup expansion,” he adds. “This will have a marked impact on the economy, particularly the real estate and retail sectors. It’s expected that there will be an economic contraction especially if no policy initiatives are put in place to maintain the growth momentum.

“While Qatar’s fiscal position has improved, policy-makers have not put forward any strategies for addressing the period after the World Cup,” he adds.

Friendly relations

In January 2021, Saudi Arabia, the UAE, Bahrain and Egypt announced the lifting of a three-year political and economic blockade of Qatar, put in place after the countries accused Qatar of being too close to regional Islamist groups and Iran.

The attempt to cut off Qatar both politically and economically had little obvious impact, with Qatar establishing alternative import and export relationships, and the Qatari state offering strong support to affected industries. Still, the normalisation of relations and the easing of tensions offers the country and its businesses new trade opportunities, which could be important in the coming years, with uncertain global economic conditions.

Commercial Bank’s Mr Abraham says that the benefits of the removal of the Saudi-led blockade have not yet fully flowed through to sectors such as hospitality and tourism, due in large part to the global pandemic. This will increasingly change.

At the same time, he says, the North Field expansion project “will help to secure Qatar’s economic future as the world’s leading LNG exporter”.


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