Sunday, 21 October 2012

Qatar’s fiscal surplus likely to slide to 6% of GDP

ASIF IQBAL

DOHA QATAR’S stagnating or slightly growing fiscal revenues and the anticipated increases in spending are likely to result in dwindling fiscal surpluses, a senior Barclays economist has said.

The surplus, which was 14.1 percent of GDP in 2009, is expected to average of 6 percent of GDP over the coming two years, Alia Moubayed told Qatar Tribune in an exclusive interview.

“While the new budget projects spending to rise about 7.5 percent year on year, we think it is likely to increase 20-24 percent, based on past years’ overspending patterns, and likewise with an increase in wages of about 25 percent, we expect higher subsidies on account of creeping global food and energy prices,” Moubayed a senior economist at Barclays said.

Development spending is expected to rise 40 to 45 percent and allocations to fund major projects are set to grow by 61 percent to QR62 billion, or 9 percent of GDP in 2012-13, she said.

Regarding the country’s domestic growth plans, the Barclays official said Qatar’s foreign asset accumulation continues to be a cornerstone of its growth and diversification strategy.

“As a net exporter of capital, it has continued to use its current account surpluses to acquire assets abroad and add to its already significant stock of foreign assets, which exceeded $100bn at end-2011,” she said.

In 2011, outflows of capital increased almost six-fold, to $62.6 billion from $10.7 billion in 2010, with more than a third of capital outflows in the form of foreign direct and portfolio investment (about $23.2 billion), she added.

Moubayed further said that stock has increasingly become an important generator of investment income for Qatar, rising threefold, from $2.4 billion in 2010 to almost $6.2 billion in 2011 and accounting for 12 percent of Qatar’s current account surplus.

“We expect outflows to continue in 2012 as Qatar pursues its strategic acquisition strategy and extends its support to neighbouring Arab Spring countries,” she said.

“As its growth drivers change and fiscal spending continues to rise, leading to a rapid increase in imports, we would expect current account surpluses to decline as well over the next three years, implying a slower pace of foreign asset accumulation and opportunistic acquisition of assets abroad,” Moubayed said.

Commenting on the health of the local banks, Moubayed said local banks continue to play a key role in supporting public sector expansion and growth domestically and abroad. She said credit growth has accelerated significantly, rising from an average of 16.2 percent year on year in 2011 to 33.7 percent in the first seven months of 2012, driven largely by credit growth to the public sector.

“The public sector credit quadrupled over the same period, rising from an average of 19.6 percent year on year in 2011 to 70 percent in January-July 2012, while private sector credit was showing signs of stagnation at about 15 percent year on year,” Moubayed said.

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