LNG Export Income to Bring Significant Improvement in Qatar’s Budget: BNP Paribas

A sharp increase in revenue from LNG exports will bring significant improvement in Qatar’s budget; BNP Paribas said and noted the country’s budget may return to surplus this year and in 2022 given the expected increase in oil prices and control over spending.

In its second quarter report, BNP Paribas Economics Research said the fall in oil prices resulted in a drop in fiscal revenue in 2020. Some 85% of total revenue comes from the oil and gas sector. However, BNP Paribas estimates that the budget deficit remained modest, at 1.7% of GDP, thanks notably to a reduction in investment spending.

Direct fiscal support to the economy was limited and the government avoided any increase in current spending. Between 2016 and 2019, public sector investment was very high, accounting for more than 40% of total spending, but this cycle now seems to have come to an end with the completion of the bulk of the infrastructure related to the 2022 World Cup (FIFA World Cup Qatar 2022).

The external accounts are dominated by hydrocarbon exports (more than 85% of total exports, including 64% from LNG). The trade balance has a large structural surplus, equivalent to 25% of GDP on average between 2015 and 2019, BNP Paribas said.

In 2020, the current account ran a deficit equivalent to 2.5% of GDP. The rebound in oil prices should help the current account move back into surplus in the short term. As with the public accounts, the introduction of new LNG export capacity should help generate significant current account surpluses over the medium term.

Total external debt is high (139% of GDP in 2020) and has been climbing steadily. This level of debt is not, in and of itself, a threat to the country’s solvency. Government assets are greater than 200% of GDP, BNP Paribas said.

Part of this debt (around 15% of the total) has been contracted by the government and by private non-financial companies. The rest consists of Qatari bank debts to foreign counterparts.

The annual growth in claims on the private sector (around 60% of total domestic credit) has averaged 13% since 2015 (7.4% for the public sector), whilst deposits grew by an average of only 2.3% over the same period. Total bank assets represent around 240% of GDP, BNP Paribas said.

Against this background, banks have called on external resources (37% of total bank resources in 2020) in the form of non-resident deposits (37% of total external liabilities) and interbank loans (48%), with the remainder consisting of debt issued on international markets, BNP Paribas noted.