The winds of fortune are blowing favourably for Qatar’s economy. Demand for the country’s key commodity, natural gas, is soaring as Russia’s invasion of Ukraine reshapes the global energy market.
The success of the 2022 Fifa World Cup in Doha has pushed tourism and non-oil economic activity to new highs, just as easing political tensions in the region are opening up new opportunities for Qatari businesses.
This set of conditions is contributing to punchy gross domestic product (GDP) growth. In 2022, Qatar’s economy expanded by 4.8%, thanks in large part to the outsized impact of the World Cup. This is mirrored in the performance of the non-hydrocarbon sector, which grew by 6.8% — its fastest rate of expansion since 2015, according to Oxford Economics.
Encouragingly, the positive after-effects of a robust 2022 have filtered through to the opening months of this year. In February, the country enjoyed the highest number of international arrivals, outside of the period of the World Cup, in the past 10 years, while tourism numbers over January and February combined were up 347% on a year-on-year basis, according to government figures.
This has been accompanied by a sustained improvement in business conditions. Qatar’s headline Purchasing Managers’ Index (PMI) hit 54.4 in April, well above the survey average of 52.2 based on data stretching back to 2017, according to the Qatar Financial Centre.
Within this index, the rate of new business increased at its fastest pace in nine months in April, a metric that covers large business orders as well as requests for new products.
“If you look at the PMI surveys, they’ve been in expansion since February and rising every month. Sentiment is running high across all sectors, but especially among manufacturers,” says Maya Senussi, senior economist for the Middle East at Oxford Economics.
Even so, it will be difficult for the Qatari economy to replicate the one-off impact of the World Cup in 2023, and as such, growth is expected to moderate in the coming months.
“Looking at Qatar, we’re generally positive both in the near term and the medium term. But obviously we expect growth to be slower from now on after the boost from the World Cup last year,” says Ms Senussi.
Looking up
In March, rating agency Fitch revised its outlook for Qatar’s sovereign credit rating to ‘positive’ while affirming its AA– rating. Nevertheless, the agency notes that the negative base effects of the World Cup will see non-oil activity moderate over 2023. Lower government spending will also feed into this dynamic, as most of Qatar’s large non-energy infrastructure expenditure winds down following years of expansion.
“In 2023, we think [GDP] growth will dip to around 1%. Our expectation is that economic growth will moderate until 2025 and then it will substantially rise with the liquified natural gas (LNG) expansion [linked to investments in the North Field],” says Cedric Berry, director at Fitch Ratings.
“We expect the government will gradually reduce its capital expenditure (capex) spending. They have delivered most of their pipeline of key large infrastructure projects.”
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Lower government spending should help ease inflationary pressures in the economy, which remain relatively controlled. On May 4, the central bank increased its deposit, lending and repurchase agreement rates by 25 basis points to 5.5%, 6% and 5.75%, respectively, keeping broadly in line with the US Federal Reserve. The headline inflation rate fell from 4.4% in February to 4% in March, according to the Qatar Central Bank.
The country’s public finances, meanwhile, are set to remain strong in 2023. The government in Doha is expected to post a double-digit fiscal surplus of around 10% for the year, which includes estimated income from sovereign wealth fund, Qatar Investment Authority, according to Fitch.
This comes despite a slightly cooler price environment for most hydrocarbons, including natural gas. Yet the government’s lower capex commitments will offset any associated impact on revenues.
In addition, Qatar’s improving public debt position is a further marker of the country’s fortress-like balance sheet. The emirate’s debt-to-GDP ratio is expected to hit 45% in 2023 before reducing further to 42% in 2024, according to Fitch. This represents a significant reduction from the peak of 85% recorded in 2020 and points to the government’s efforts to pay off maturing instruments. Around $7.5bn in maturing external debt is expected to be cleared in 2023. Further repayments of domestic debt are also anticipated over the next few years.
“The authorities have sought to rebuild buffers, pay down debt, and use [their fiscal surpluses] quite smartly by taking a longer-term view,” says Ms Senussi.
Future plans
Qatar’s public finances will receive a massive boost from the completion of the North Field expansion, a project that will ramp up the country’s exports of natural gas and condensates. The North Field, the world’s largest gas field, has an existing liquefaction capacity of 77 million tonnes per annum (mtpa), but the following the completion of ongoing upgrades and expansion efforts, involving the installation of a further six liquefied natural gas trains, this will increase to 126mtpa by 2027.
“Over the next five years, six extra LNG trains will gradually come on stream in the North Field,” says Justin Alexander, director of Khalij Economics. “This will massively increase not just gas production, but also the output of condensates that come with it — which can be even more valuable.”
Long-term agreements have already been signed with China, covering a 27-year contract for four million tonnes of LNG per year. A 15-year accord has also been inked with Germany, that includes the provision of two million tonnes of LNG per year.
These deals, and others, bode well for the future. Qatar’s reputation as a secure and reliable supplier of natural gas is reaping significant rewards for the emirate at a time of heightened geopolitical instability. So too is its somewhat unique political posture.
“Qatar has broad geopolitical relations, in terms of being friendly with both the US and China, as well as with Iran and other regional powers,” says Mr Alexander. “So, it bridges all of these worlds and it can offer security of [energy supply] in an increasingly uncertain world.”
Qatar has broad geopolitical relations, in terms of being friendly with both the US and China
Healthy inflows of hydrocarbon receipts will boost Qatar’s pursuit of long-term economic diversification objectives through the Qatar National Vision (QNV) 2030. The QNV’s central goal is the transformation of the emirate into an “advanced country, capable of sustaining its own development”, that can provide high standards of living for current and future generations.
Among other things, this includes incentivising the development of higher valued-added industries in the country, increasing entrepreneurship and augmenting the role of the private sector across the wider economy.
As such, Qatar is prioritising foreign direct investment by taking steps to liberalise the legal and regulatory environment, including through the passage of the 2019 Foreign Direct Invest Law, as well as promoting specific sectors, including financial services.
“The country will continue its diversification efforts to accelerate the execution of the QNV 2030 in the transition towards a knowledge-based economy,” says a spokesperson for Qatar National Bank (QNB). “Private sector growth will continue to be supported by structural reforms and initiatives to promote small and medium enterprises.”
Even so, the impetus for sweeping economic change is less urgent relative to some peer jurisdictions. This reflects the vast scale of the country’s hydrocarbon resources, when mapped against a relatively small population of just over three million people.
In this sense, Qatar is not burdened with an existential requirement to diversify its economy in the same way as other, more populous hydrocarbon powers like Saudi Arabia or Nigeria.
“From the perspective of government finances, efforts to diversify the economy don’t really matter at all because Qatar is expected to achieve fiscal surpluses at a low oil price for the foreseeable future,” says Mr Alexander.
But change is clearly coming to Qatar. With a growing number of global sporting events being held in the country and with tourist numbers increasing sharply, it is fast emerging as a go-to tourism and lifestyle destination in the region.
Alongside these developments, the country’s potential as a major transport and logistics hub looks set to grow. Research from the Investment Promotion Agency of Qatar suggests that growth in this sector will outpace that taking place in Gulf Co-operation Council peers between 2022 and 2026.
Meanwhile, the end of a coordinated economic blockade against Qatar, involving Saudi Arabia, Bahrain, Egypt and the UAE, coupled with a broader Saudi-Iranian rapprochement taking place in 2023, is easing political tensions across the region and boosting opportunities for cross-border business and investment.
State-owned Qatar Energy, for example, secured a 25% stake in a massive natural gas project in Iraq in April, in a further boost for Doha’s political and energy ambitions in the region.
