Emerging

A favourable outlook

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Eco Emerging // 2 quarter 2021  
economic-research.bnpparibas.com  
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1
QATAR  
A FAVOURABLE OUTLOOK  
The Qatari economy began 2021 under relatively favourable conditions: thought the regional embargo ended, the  
Covid-19 pandemic is still active. Despite the fall in oil prices in 2020, the fiscal and current account deficits remained  
limited. Over the medium term, the development of new gas export capacity should further strengthen an already  
solid macroeconomic position. The main source of vulnerability remains banks’ external indebtedness, which is very  
high and continues to grow as the economy’s expansion accelerates. However, government support is guaranteed,  
and the external position of the banks should be restored as a result of the expected slowdown in lending and  
increase in deposits.  
A MODEST ECONOMIC REBOUND IN 2021  
FORECASTS  
Two events, pulling in opposite directions, stood out at the beginning of  
2
021: the lifting of the embargo that had affected Qatar since 2017, and  
2019  
2020e  
2021e  
2022e  
a second wave of the Covid-19 pandemic. The economic consequences  
of the ending of the embargo are positive in terms of trade and financial  
flows, but should not be overstated. Whilst the embargo was in force,  
the Qatari economy was able to diversify its sources of supply and  
improve its autonomy.  
Real GDP growth (%)  
-0.4  
-0.6  
1.0  
50  
-3.7  
-2.6  
-1.7  
48  
1.9  
1.8  
4.2  
47  
3.6  
2.9  
3.3  
46  
Inflation (CPI, year average, %)  
Gen. Gov. balance / GDP (%)  
Gen. Gov. debt / GDP (%)  
Current account balance / GDP (%)  
External debt / GDP (%)  
2.4  
123  
38  
-2.5  
139  
38  
5.8  
134  
45  
3.9  
135  
54  
As far as the public health situation is concerned, the death rate  
due to the pandemic is one of the lowest in the Gulf. However, the  
number of new cases continues to rise, and new restriction measures  
have been imposed recently. Government support to the economy  
in 2020 was substantial, at around 14% of GDP, the bulk of which  
consisted of support for bank liquidity and a system of restructuring  
and guaranteeing loans. Despite this, GDP fell 3.7% in 2020, with a 2%  
year-on-year decline in oil and gas production (40% of GDP) and, more  
importantly, a sharp drop in non-oil sectors (down 4.6% year-on year),  
particularly construction, which accounts for 12% of total GDP and  
contracted by 4%.  
In 2021, the economy is likely to return to growth, but the rebound  
will remain modest at around 1.9%. Oil and gas production is likely  
to increase only slightly, but progress in the vaccination campaign  
and the benefits of the lifting of sanctions should boost growth in the  
second half. GDP will probably return to 2019 levels in 2022, with the  
expected ending of restrictions relating to the pandemic and the knock-  
on effects of hosting the football World Cup.  
Forex reserves (USD bn)  
Forex reserves, in months of imports  
6.8  
7.0  
8.0  
9.0  
e: ESTIMATES & FORECASTS  
TABLE 1  
SOURCE: BNP PARIBAS GROUP ECONOMIC RESEARCH  
ECONOMIC ACTIVITY (% Y/Y)  
1
0
8
6
4
2
0
2
4
6
Total GDP  
Non-hydrocarbon GDP  
Hydrocarbon GDP  
Non-oil GDP has been the main engine of growth over the last decade,  
but over the medium term the oil and gas sector will take over as the  
main source of growth due to the development of substantial liquefied  
natural gas (LNG) production capacity. Production is likely to grow by  
-
-
-
6
0% by 2027. Growth prospects in non-hydrocarbon sectors will be  
more limited, given the small size of Qatar’s population and the limited  
attractiveness of its economy outside the oil and gas sector. The main  
sources of economic diversification remain in the downstream sectors  
of the oil and gas industry.  
2
015  
2016  
2017  
2018  
2019  
2020  
2021f  
2022f  
CHART 1  
SOURCE: PLANNING AND STATISTICS AUTHORITY, BNP PARIBAS  
At a global level, the LNG market is becoming increasingly competitive,  
with a notable strong increase in exports from the USA (shale gas),  
which in just a few years has become the world’s third largest exporter,  
overtaking Russia. That said, prospects for the Qatari LNG industry  
remain favourable over the medium to long term. In general terms,  
although it still produces greenhouse gas emissions, burning LNG is  
less polluting than burning oil or coal. According to the International  
Energy Agency, growth in demand for LNG will be outstripped only  
by demand for renewable energy over the medium term. In addition,  
LNG EXPORT PROSPECTS  
In 2017, Qatar brought to an end a twelve-year moratorium on  
expansion of LNG production capacity, and undertook a USD 50 billion  
expansion plan that is likely to increase LNG exports by more than 60%  
by 2027, to some 126 million tonnes per year. Long-term LNG supply  
contracts will remain as the bedrock of Qatar’s commercial policy, but  
the launch of a dedicated structure could increase sales on the spot  
market up to some 20% of total sales, depending on market conditions.  
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Eco Emerging // 2 quarter 2021  
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Qatari LNG enjoys some of the lowest production costs in the market.  
Asia, its traditional market, is likely to remain the region seeing the  
strongest growth in demand for gas.  
COMMERCIAL BANKS’ BALANCE SHEET: MAIN ITEMS (Y/Y %)  
Total deposits  
SOLID PUBLIC FINANCES AND EXTERNAL BALANCES  
estimate 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.  
In 2021 and 2022, the budget should return to surplus given the  
expected increases in oil prices and control over spending. The fiscal  
breakeven oil price is around USD 50, the lowest level in the Gulf  
States. Over the medium term, the sharp increase in revenue from LNG  
exports will bring a significant improvement in the budget.  
Domestic credit  
2
1
1
0
5
0
5
0
5
0
Net Foreign Assets, USD bn (RHS)  
In 2020, the fall in oil prices resulted in a drop in fiscal revenue. Some  
-
-
-
-
-
20  
8
5% of total revenue comes from the oil and gas sector. However, we  
40  
60  
80  
100  
-
-120  
2
015  
2016  
2017  
2018  
2019  
2020  
CHART 2  
SOURCE: IMF, BNP PARIBAS  
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. 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 very 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 emirate’s solvency. Government assets are greater than 200% of  
GDP.  
involvement in the banking sector, both in the form of deposits (around  
0% of total domestic deposits) and through significant stakes in banks’  
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capital. Thus banks’ external liabilities can be considered as contingent  
liabilities for the government. However, we believe that there are a  
number of factors that limit the scale of this vulnerability. Because of its  
close ties to the government, the banking sector enjoys very favourable  
external credit ratings. In case of difficulty, government support to the  
sector is substantial. For example, deposits from the government,  
which has significant resources, rapidly offset the withdrawal of a  
segment of non-resident deposits following the embargo in 2017. Over  
the medium term, we would expect banks’ net external liabilities to  
be reduced. On the credit side, financing requirements are also likely  
to slow, following the completion of major infrastructure investments.  
On the resource side, the increase in government revenue as a result  
of greater LNG exports will result in bigger, less volatile public sector  
deposits.  
IS BANKS’ EXTERNAL DEBT A VULNERABILITY?  
Notwithstanding the above, the composition of external debt is a  
source of economic vulnerability. 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. External bank debt has built up continually over recent  
years due to a lack of local resources to cover domestic demand for  
lending. 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.  
Against this background, banks have called on external resources (37%  
of total bank resources in 2020) in the form of non-resident deposits  
Completed on 9 April 2021  
(
37% of total external liabilities) and interbank loans (48%), with the  
remainder consisting of debt issued on international markets. The net  
foreign asset position of the banking system has been negative since  
2
009 and has worsened significantly since 2018, with a doubling of net  
external liabilities. It reached USD 112 billion in December 2020, or  
some 75% of GDP.  
This situation creates a double vulnerability: for the banking system,  
and to a lesser extent for the government. The increased dependence  
on external financing makes the banking system vulnerable to  
any economic or political event that could affect the confidence of  
external lenders in Qatar. Meanwhile, the government has significant  
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QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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