Qatar set to post fiscal deficit next year on higher spending amid Gulf crisis, says report

BMI Research had previously forecast the Arabian Gulf state would post a surplus in 2018

Qatar is now forecast to post a fiscal deficit next year, instead of a surplus, according to a BMI Research report. Saurabh Das / AP

Qatar is forecast to post a fiscal deficit rather than a surplus next year owing to the economic and political rift with four Arab countries, a new report said on Friday.

The world’s biggest exporter of liquefied natural gas will post a deficit of 2.2 per cent of GDP next year, according to BMI Research, a unit of the Fitch Group.

BMI had forecast in June a fiscal surplus for Qatar next year and a fiscal deficit of 1.2 per cent of GDP for this year.

Qatar now is forecast to post a 3.8 per cent deficit for this year, compared with 9 per cent deficit last year.

Saudi Arabia, the UAE, Bahrain and Egypt severed diplomatic, economic and transport ties with it last month over its support of extremist groups.

“Government efforts to ease the effects of the crisis on the local population and economy will keep spending high over the coming months, while also limiting the scope for raising non-oil revenue,” BMI said.

“In particular, we believe it will cover a lot of the costs linked to the reorganisation of supply chains following Saudi Arabia and its close allies' imposition of restrictions on cross-border movements between Qatar and the rest of the region.”

The four Arab countries have cut land, sea, and air links to Qatar, which relied on some of these countries for essential goods and services.

Qatar is expected to fund its fiscal deficit through debt rather than drawing down its sovereign wealth fund, BMI said. The country issued last year a US$9 billion international bond to help plug a budget shortfall.

“The government is expected to make a decision within the next two-to-three months regarding an eventual return to international debt markets this year,” said the report. “While such a move cannot be ruled out, it appears less likely to take place in the immediate term, in our view, in light of the recent issuance and ongoing volatility.”

The Qatari government is expected to suspend fiscal consolidation measures and put off plans to lower the public sector wage bill, upping the pressure on the country’s current spending, BMI said. The government is expected to continue its capital spending, with some 93bn Qatari riyals allocated this year for projects that include transport, infrastructure, health and education.

“Capital spending, meanwhile, is set to remain high throughout the next five years, fuelled by projects linked to the FIFA World Cup 2020 and the Qatar National Vision 2030 diversification programme,” said BMI. “On the revenue side, we forecast steady growth in the quarters ahead, primarily as hydrocarbon prices strengthen on the back of the extended OPEC, non-OPEC supply-cut deal.”