Qatar feels economic pinch
LONDON - As with all Gulf Cooperation Council (GCC) members, falling oil prices have caught up with oil-rich Qatar, forcing the tiny, but influential, Gulf state to radically curtail expenditures in 2016 after announcing an expected budget deficit of more than $12 billion for the year. It would be Qatar’s first budget deficit in 15 years.
Revenues for 2016 are forecast to reach $42.8 billion, down substantially from 2015 revenues of approximately $62 billion, the government said. Government spending is expected to total $55.6 billion, with a deficit projected at $12.8 billion. However, these figures are based on oil prices of $48 a barrel and not at the current $33 a barrel.
As a consequence, at a January 27th cabinet meeting, Qatar’s Emir Sheikh Tamim bin Hamad al-Thani tried to set the country at ease, emphasising that there was no need to panic in light of low oil prices. He pushed, however, for more diversification of Qatar’s economy while acknowledging the current situation was a national challenge.
“Your responsibility in light of the falling oil prices is bigger but serving the citizens and their lifestyle should not be affected by this situation,” Sheikh Tamim told cabinet ministers.
The decision to reassess its budget and spending is a stark contrast to Qatar’s attitude less than five months ago, when Doha vowed to continue government-funded economic development projects and pledged not to cut subsidies for fuel and food despite low oil prices.
Doha actually started cutting costs in 2013 after Sheikh Tamim succeeded his father as emir. However, at that point the motivations were not falling oil prices, which were robust, but the completion of infrastructure for the 2022 FIFA World Cup.
According to the Financial Times, the majority of cuts targeted by the government in Qatar mostly affect cultural, educational and health plans and pet projects launched and led by the emir’s mother, Sheikha Moza bint Nasser al-Missned.
Qatar’s bid for hosting the World Cup has been mired in controversy due to a bribery scandal involving FIFA officials. The cost of projects related to the event is proving to be a challenge because of the regional economic circumstances, particularly since Qatar’s construction costs are the highest in the GCC, experts said.
Consulting firm Deloitte estimated costs of $200 billion for Qatar to host the tournament, a much larger investment than South Africa’s $4 billion in 2010 and Brazil’s $15 billion in 2014. Russia has budgeted $6.8 billion for the 2018 World Cup.
Moreover, the Doha government has asked banks to provide a $5.5 billion loan to help reduce domestic borrowing as the government continues to finance projects associated with the World Cup.
One of the most visible casualties of Qatar’s economic situation is the US offshoot of its Al Jazeera news channel, which announced it would end operations on April 30th, cutting 700 jobs. The network launched three years ago when oil prices were about $100 a barrel.
Al Jazeera America failed to resonate with viewers, attracting a daily average prime time audience of 34,000 in 2015, a dismal figure when compared to cable news leader Fox News Channel, which averaged 1.72 million prime time viewers in the same period.
Al Jazeera America’s representatives blamed the operation’s closure on the US economy, claiming, “the Al Jazeera America business model is simply not sustainable in light of the economic challenges in the US media marketplace”.
It is not all gloom for Qatar’s economy, however, according to one of its top bankers. “We have an economy that is very well manageable. The size of our population is to our advantage. We also have huge natural resources, reserves and investments. The current global economic slowdown is going to be challenging, but it is not going to upset our economic plans,” said Abdulbasit al-Shaibei, Qatar International Investment Bank chief executive officer.
Doha’s long-term options are on par with the rest of the GCC with regards to the need to diversify its economy beyond dependence on petrodollars, something the International Monetary Fund (IMF) believes Qatar is well on its way to achieving.
IMF Managing Director Christine Lagarde said during a visit to Doha in November that “there have been solid and strong policy measures to diversify the economy”, describing current economic circumstances as a “wake-up call”.