Budget deficit of $7.8 billion expected in Qatar in 2017
Washington - Qatar is in the midst of a spending frenzy in preparation for hosting the FIFA World Cup in 2022 even as it braces for a second year of budget deficit following five years of surplus.
The massive spending comes at a time when Qatar is facing increasing competition in the liquefied natural gas (LNG) market, in which it has reigned supreme as the top producer for years, with Australia and the United States becoming major players.
For Doha, hosting the World Cup is a means of putting Qatar in the international spotlight and raising its global stature both politically and economically. Qatar will be seeking the distinction of being the first Arab and Muslim country to host the football tournament and is sparing no expense. Qatari Finance Minister Ali Shareef al-Emadi has said Qatar is spending nearly $500 million a week on infrastructure projects related to hosting the 2022 event.
In addition to the construction of stadiums, capital expenditures cover building highways, hospitals and a new airport. Emadi suggested that the current rate of spending could continue into 2021.
Qatar anticipates its expenditures for the World Cup to exceed $200 billion. In stark contrast, 2018 World Cup host Russia said it had boosted its spending related to next year’s tournament by $325 million, with total expenditures expected to reach $10.8 billion.
The Qatari government allocated about $25.6 billion of its 2017 state budget — 46% of the total — to spending on major infrastructure projects, including those related to the World Cup. In December, Qatari Emir Sheikh Tamim bin Hamad al- Thani approved the 2017 state budget that forecast a deficit of $7.8 billion. Last year marked the first time in 15 years that Qatar faced a shortfall — estimated at $12.8 billion — in its budget.
There is a strong likelihood that the 2017 deficit might be less than estimated. Doha based its budget on an assumed oil price of about $45 a barrel but crude prices are around $53-$55 a barrel and are expected to rise after an agreement was reached late in 2016 between members of the Organisation of the Petroleum Exporting Countries (OPEC) and independent oil producers to collectively withdraw as much as 1.7 million barrels per day from the oil markets.
The Qatar National Bank (QNB) calculated that rising oil prices coupled with the expected introduction of a value-added tax (VAT) next year would bring Qatar’s budget to “near balance” in 2018. Qatar will likely continue to fill in the financial shortfall through borrowing rather than tapping into the considerable assets held by the country’s sovereign wealth fund, the Qatar Investment Authority.
Qatar’s extreme spending in preparation for the World Cup coincides with necessary restructuring within its LNG business as Doha faces growing competition that is biting into Asia, Qatar’s chief market. Australian and US producers together are expected to account for 90% or more of the world’s new LNG exports through 2020. Australia’s LNG boom has led analysts to forecast that it could overtake Qatar as the leading LNG producer as early as next year.
Asian LNG buyers are increasingly valuing diversity and security in their suppliers by looking closer to home and relying less on Middle East exporters out of concern over potential supply disruptions in the Strait of Hormuz.
The explosion in US shale gas development resulted in the United States becoming a net natural gas exporter in November 2016. Because US producers can reasonably reach both European and Asian customers in a timely fashion, they may assume the role of swing LNG exporter, further eroding Qatar’s dominant position in Asia.
In a major consolidation move to streamline costs in its LNG business and fight the growing competition, Qatar announced at the end of 2016 that it was merging state-owned LNG producers Qatargas and RasGas into a single entity known as Qatargas, a process that is to be completed by the end of this year.
Contending with steeper competition and the global energy price slump, Qatar was forced to renegotiate several long-term LNG contracts with Asian customers or risk losing valuable business. The Asian market accounts for up to 75% of Qatar’s LNG exports.
While Doha’s massive spending spree will not last forever, it appears its reign as the world’s top LNG producer may be coming to an end. While relinquishing that position to Australia will not cause Qatar major financial distress, it will be a symbolic loss for Doha in the international energy community.