By Siddiqi, Moin
The Middle East , No. 412
MORE THAN A DECADE of macro-prudential policies, shrewd investment planning and market-oriented reforms helped to fuel double-digit growth both in both the hydrocarbon and non-hydrocarbon sectors and saw a swelling of the 'twin surpluses' (the government budget and balance of payments), leaving Doha strongly placed to withstand exogenous shocks and continue its robust performance, despite the regional slowdown.
The International Monetary Fund (IMF) praised the Qatari authorities for competent economic governance during challenging times and preserving the growth momentum and financial stability. It noted that sound macroeconomic policies have underpinned investments, which contributed to stellar growth and growing fiscal and external surpluses. Unsurprisingly, major ratings agencies acknowledge Qatar's excellent risk profile with a higher investment grade rating (Moody's Investor Services Aa3 and Standard & Poor's AA-), on a level with several industrialised economies and the highest in the Middle East. "Qatar's issuer rating indicates a high level of prosperity, wide external current account surplus, a strong balance sheet and the rapid expansion of gas exports that will significantly boost government revenues over the coming years," Moody's said.
The overall pace of development is exceptional by any yardstick; the nominal Gross Domestic Product (GDP)--output of goods/ services--in US dollar terms rose fivefold to $82.86 billion during 2000-09, with real GDP growth averaging 11.2% per annum.
In contrast, the Gulf Cooperation Council (GCC) bloc recorded 5-3% growth over the same period, based on IMF figures. The exploration of hydrocarbons resources, the expansion of related industries and mega capital projects largely drove this breathtaking economic boom.
In 2009, Qatar still managed to achieve 11% economic growth in the midst of severe global credit crunches, whereas real GDP in Kuwait, Saudi Arabia and the United Arab Emirates contracted by 1.6%, 0.9% and 0.2%, respectively.
As elsewhere, fiscal policy was expansionary, as development spending rose by 15% in the financial year 2009/10. In some cases, the authorities injected cash into public projects (especially housing) to stimulate the economy. Meanwhile, inflationary pressures abated sharply due to an increase in housing supply--precipitating large falls in domestic rents--and a reduction in import prices.
Last year's official intervention in the banking system (costing about 6.5% of GDP)--mainly in the form of capital injections by the Qatar Investment Authority and purchases of the equity investment and real estate portfolios of commercial banks--has improved liquidity, maintained credit to private businesses and enhanced the system's resilience. Moreover, the impact of Dubai's debt crisis on the local banking sector was minimal. Like its regional peers, Qatari banks are well capitalised, profitable and strongly regulated. Non-performing loans (i.e. bad debts) are reportedly the lowest in GCC states.
This year, Qatar could record the world's highest GDP growth at 18.5%, thanks to soaring LNG output (and associated industries) and continuous expansion in manufacturing and construction. Hydrocarbon output is forecast to leap by 25%, before slowing to a still robust 17.2% in 2011 as LNG production finally peaks at 77m tonnes (see Table). The fiscal and external current accounts should again show hefty surpluses, reflecting strong energy prices.
Qatar owns the single largest non-associated gas reservoir in the world. The 'ultra-giant' North Field (covering 6,000 sq km) was discovered in 1971 by Royal Dutch Shell and contains more natural gas than the combined recoverable reserves of the Americas and Western Europe (totalling 830 trillion cubic feet). By contrast, Qatar's proven reserves of sweet gas are 910.5 trillion cubic feet, cementing its strategic role in energy markets well into the next century. …