(MENAFN- Gulf Times) In a region that has been buffeted by a steep decline in oil prices over the past 12-months, the underlying strength of Qatar's economy remains relatively robust.
The country's commitment to implementing a large public infrastructure investment programme, in our opinion, supports the medium-term outlook for economic growth. Possessing the third-largest proved reserves of natural gas in the world should also help cushion any major fallout from volatile commodity markets.
Qatar's economy grew by about 6% over the last three years, but we expect this expansion to slow to about 4% in the 2015-2018 period. While the country's hydrocarbon sector will likely continue to stagnate, the non-oil sector should stay buoyant thanks in large part to public investment and a growing population. The government appears committed to its massive infrastructure spending plans, as well as efforts to diversify the economy. Maintaining its strategic position in the global natural gas market also remains a top priority.
Potential challenges to Qatar's competitive position in the liquefied natural gas (LNG) market could come in the form of new shale production, Russia's gas pipeline to China, and increased pressure to delink LNG contracts from the price of oil.
Mindful of this, Qatar's strategy has been to diversify into all major markets, adjusting the mix of destinations and contract types, according to market needs. Moreover, the majority of its gas exports are under long-term contract, something that gives Qatar more certainty regarding volumes sold. Another factor working in Qatar's favour is the cost advantage it has over many new projects in other countries. Its cost of producing LNG is much lower because it exports such massive quantities of condensate and natural gas liquids associated with natural gas.
In terms of crude oil, the picture isn't as rosy. We assume that production will decline as output from maturing fields' contracts. Annual crude oil production is expected to drop by an average of 5% over 2015-2018, while gas (natural gas and LNG) output remains steady.
Without doubt, the dramatic decline seen in oil and natural gas prices over the past year, as well as the government's public investment program,has proved a fiscal drag. We now expect the general government balance to fall into a deficit of 4.5% of GDP in 2016, from a modest fiscal surplus in 2015.
In the context of lower hydrocarbon revenues and increasing capital expenditure, the government is prioritizing existing projects, focusing funding on the highest-priority and strategic investments. National development strategy projects will likely improve the economy's productive capacity and strengthen Qatar's competitive position.
We understand the government plans to award about $220bn of large-scale investment projects over the next 10 years, focusing on infrastructure, education, and health. These projects will all likely be completed ahead of the football World Cup in 2022 that Qatar is hosting.
Qatar's high economic wealth, combined with strong external and fiscal positions, means its immediate outlook is a stable one. And while not completely immune to a volatile commodity prices, it still remains better positioned than many to balance any institutional shortcomings and limited monetary flexibility over the coming few years.
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