Qatar warns of cost overruns, delays in projects – Govt predicts at least 3 years of budget deficit

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DOHA, June 19, (Agencies): A $200 billion infrastructure programme launched by Qatar could see higher costs and delays because of the slump in oil prices, the government of the 2022 football World Cup host warned Sunday.

A study from the Ministry of Development Planning and Statistics (MDPS) said that “continued volatility” on the oil market was likely to have consequences for the vast construction projects underway in the Gulf emirate.

It also confirmed that Qatar will for the first time introduce a value-added tax in 2018, in the form of a five percent levy on certain goods that was agreed by Gulf Cooperation Council finance ministers this month.

“Most risks to the outlook are grounded in international oil price movements,” the MDPS said in its “Qatar Economic Outlook” study.

“If they (oil prices) remain low for an extended period, the fiscal and external accounts deficit will be more pronounced requiring funding efforts.”

It added that risks included “delays or cost overruns (or both) in the delivery of key infrastructure reforms.”

Qatar is a member of OPEC and the world’s biggest exporter of liquified natural gas.

Among the major infrastructure projects being built are Doha New Port, a Metro system and regeneration of parts of the capital.

The World Cup is expected to cost about $30 billion, with stadiums accounting for $10 billion of that, organisers have said.

The MDPS said Doha will run a budget deficit of 7.8 percent this year, Qatar’s first in 15 years.

This will increase to 7.9 percent in 2017 and fall to 4.2 percent the next year, it predicted.

Qatar’s economy is expected to continue to expand, but growth will slow — from 3.9 per cent this year to 3.2 in 2018, the MDPS predicted.

Qatar’s government expects to run a budget deficit for at least three years as low natural gas and oil prices weigh on its revenues, the Ministry of Development Planning and Statistics said on Saturday.

In a long-term report on the Qatari economy, the ministry forecast a fiscal deficit of 7.8 percent of gross domestic product (GDP) this year, which would be the first deficit in 15 years and bigger than the deficit of 4.8 percent predicted for 2016 in the ministry’s last report published in December.

The deficit is expected to total 7.9 percent of GDP next year before shrinking to 4.2 percent in 2018, the ministry said.

Qatar, the world’s biggest liquefied natural gas exporter, is one of the richest of the Gulf states but like its neighbours, it has been pushed into austerity measures this year in an effort to stabilise its finances. More austerity will be needed to achieve the ministry’s projections, the report said.

“This estimate assumes that the government pares recurrent spending and caps growth of capital spending below previously programmed levels; that there are effective cost reductions in the hydrocarbon sector, which support transfers to the budget; and additional non-oil and gas revenues accrue to the budget.”

Some of the projected improvement in the fiscal balance depends on a hoped-for rise in energy prices; the ministry assumed the average crude oil price would climb to $48.91 a barrel in 2018 from $45.49 in 2017 and $37.88 this year.

The ministry predicted Qatar’s economy would grow 3.9 percent this year, down from a previous 4.3 percent forecast. It expects growth of 3.8 percent next year and 3.2 percent in 2018.

Liquidity in the Qatari banking system has tightened and money market rates have risen because of reduced inflows of gas and oil money. The ministry said the central bank might take several steps to reduce pressure on liquidity.

It could cut official interest rates, continue to suspend domestic Treasury bond issuance while resuming its suspension of Treasury bill issues, or adopt unconventional measures used by central banks in other countries such as direct purchases of commercial bonds and extraordinary loans to, or equity injections in, individual banks, the ministry said without specifying which steps were likely to be chosen.

In early 2014, the central bank announced a new loan-to-deposit requirement for banks of 100 percent by the end of 2017. The deposit side of the ratio includes only customer deposits and not long-term wholesale funds, which have recently been the primary source of funding for banks.

The banks are still negotiating with regulators to change the loan-to-deposit formula to include long-term wholesale funds, and the deadline for compliance may be postponed until the end of 2018 because of the liquidity issues at Qatari banks, the ministry said.

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