Cooking on gas: why is the IMF bullish on Qatar?

Qatar’s huge reserves of liquefied natural gas have helped it manage price volatility, an economic blockade and now a pandemic, but the strong leadership of Emir Sheikh Tamim bin Hamad Al Thani should not be overlooked


What do Norway, the Republic of the Congo, Micronesia, Nauru, Macau, the Marshall Islands and Qatar all have in common? They are the only countries expected to run a budget surplus in 2020, according to the IMF. It’s perhaps not surprising that so many isolated island states made the list, as their small populations, coupled with the large aid packages they receive, usually lead to an excess of funds. Norway and the Republic of the Congo, on the other hand, can rely on oil reserves to prop up government coffers, while Macau’s gaming sector is already back up and running after it was disrupted by the spread of SARS-CoV-2 in March.

Still, it’s fair to say the IMF’s predictions have been met with a degree of scepticism, not least when it comes to Qatar. While the IMF forecasts Qatar will run a surplus of 5.2 percent of its GDP this year, S&P Global Ratings expects the country to post an average deficit of around five percent between 2020 and 2023. The pandemic that briefly shuttered Macau’s casinos will have long-term economic ramifications for all markets, particularly in terms of dampening demand. If global economic activity does fall, it seems reasonable to assume that Qatar’s revenue from natural gas will also be hit.

But there are reasons why the IMF may be right in its bullish assessment of Qatar. The Gulf state managed to achieve an average annual GDP growth rate of 5.72 percent between 2009 and 2019 (see Fig 1), even as fossil fuel prices displayed trademark volatility. What’s more, the national government, led by Emir Sheikh Tamim bin Hamad Al Thani, has made a coordinated effort of late to reduce the country’s reliance on gas and oil, promising to deliver a period of more reliable and sustainable growth.




Saving for a rainy day
Before the outbreak of SARS-CoV-2, Qatar’s economic position was relatively strong compared with other hydrocarbon-exporting countries. This was despite an ongoing deflationary phase accompanied by a fall in GDP and a decline in its trade surplus. It is worth noting, however, that both remain positive. The country’s credit rating is also stable, its recent bond issuance was oversubscribed and it continues to support its hard currency peg with the US dollar while expanding its money supply.

In terms of exports, Qatar remains committed to expanding its liquefied natural gas (LNG) operation – both locally and internationally – having recently acquired interests in Mexico and Côte d’Ivoire, while development drilling is underway at its offshore North Field gas field. LNG storage facilities were in the process of major expansion before the pandemic, and will prove useful even if demand patterns differ in the post-pandemic world. The kingdom’s transport, logistics and tourism sectors continue to grow, served by the Hamad International Airport and Doha Port.

“Qatar’s relatively high per capita GDP masks the fact that its largest exports are classified by the Observatory of Economic Complexity as of low and moderate complexity,” Dr Greg Bremner, a senior lecturer in economics at AFG College with the University of Aberdeen in Doha, told World Finance. “However, there are prospects for new uses of chemicals and solar energy research and exploitation, although much of this will require a more entrepreneurial culture than currently exists. There will be intermediate diversification steps that Qatar can take while the growth of additional human capital gains enough traction to drive further entrepreneurialism. Meanwhile, Qatar’s commitment to the provision of higher education continues.”

Qatar differs from many countries in that most of its population consists of expatriate labour. Consequently, the salaries of those workers and the accompanying financial services they necessitate underpin its banks. However, KPMG recently reported that Qatar’s Islamic banks stand well above the minimum ratio of capital to risk-weighted assets under the Basel III framework, allowing them to increase exposures or absorb any potential future losses.

In economic policy terms, the Qatar Central Bank’s deposit, lending and repo rates, although low, have room for downward movement if necessary (unlike those in many other countries), and there is considerable fiscal headroom into which policy can move when required. Financial services are the largest component of the Qatar Stock Exchange (QSE) and could be vulnerable if expatriate labour left. With a market capitalisation of $160.05bn, though, the QSE is ranked 57th out of the 144 stock markets tracked by market analysts.

Qatar, unlike many exhaustible natural resource exporters, is cognisant of the fact that budgeting for intergenerational fairness in spending needs to be observed. Countries use adjusted net savings to facilitate this type of budgeting so that future generations, who come after the natural resource is depleted, receive a permanent income from that resource. According to Bremner, Qatar saved almost 30 percent of its gross national income under this heading in 2018; since 2010, its adjusted net saving has remained much higher than most countries in the region. To put this into context, savings of this type in the MENA region were 14 percent and, in the countries classified as ‘high income’, just nine percent.


Stumbling block
As well as being intrinsically linked to the price of oil and gas, the economic fortunes of Qatar are intertwined with the geopolitical situation in the Middle East. In 2017, the country found itself at the centre of a diplomatic storm after Saudi Arabia, the UAE, Bahrain, Egypt and several other nations in the region severed diplomatic and economic ties over allegations that Qatar had supported Islamist terrorist groups. The impact of the blockade was immediate: at the time, Qatar imported around 40 percent of its food through its land border with Saudi Arabia. After this was closed, empty supermarket shelves became a common sight until supplies from Turkey and Iran could be transported by air or sea. The domestic stock market lost 10 percent of its value in the first four weeks of the crisis.

The blockade came into effect after Qatar refused to agree to a list of 13 demands made by several other Arab states, including the cessation of all contact with the political opposition in Saudi Arabia, the UAE, Egypt and Bahrain, shutting down the domestic news outlet Al Jazeera, and aligning itself with the other Gulf and Arab countries militarily, politically, socially and economically.

“Beginning in April, Qatar was subjected to a carefully orchestrated and unprecedented smear campaign aimed at misrepresenting our policies on key issues affecting the region,” Qatar’s foreign minister, Mohammed bin Abdulrahman Al Thani, told reporters in 2017. He later added that agreeing to the 13 demands was tantamount to “surrender[ing] our sovereignty”.

Qatar reacted quickly to mitigate the impacts of the blockade, sourcing imports from new markets and ploughing ahead with long-term infrastructure projects

In response to the blockade, Qatari citizens have rallied around their emir, with murals depicting the ruler found adorning numerous buildings in the state. Emir Al Thani reacted to the blockade in a more measured fashion, addressing the 72nd Session of the UN General Assembly in New York: “I stand before you while my country and my people are subjected to a continuing and unjust blockade imposed since June 5, [2017,] by the neighbouring countries. The blockade involves all aspects of life, including severing family ties. Qatar is currently successfully managing its livelihood, economy, development plans and its outreach to the outside world thanks to [the] sea and air routes that are not under the control of these countries.”

Qatar reacted quickly to mitigate the impacts of the blockade, sourcing imports from new markets, redirecting money from the state’s sovereign wealth fund to protect essential sectors and ploughing ahead with long-term infrastructure projects. So far, the strategy appears to be working.


The Ras Laffan LNG port, Qatar
The Ras Laffan LNG port, Qatar


Going it alone
Although the blockade continues, Qatar has proven itself to be remarkably adept at managing the economic impacts. While growth was initially curtailed, falling to 1.58 percent in 2017 (down from 2.1 percent in 2016), it was soon on the rise again, hitting 2.2 percent the following year. Qatar certainly owes gratitude to countries like Turkey and Iran, which helped to establish new trade links with the kingdom. However, the national government is also due some credit for its handling of the crisis.

One of the important decisions taken in Doha to mitigate the effects of the blockade has been to support a culture of economic self-sufficiency. Before the embargo, Qatar imported the majority of its milk from Saudi Arabia; today, it produces sufficient dairy products to satisfy the local populace, with enough left over to export to other markets, including Afghanistan, Yemen and Oman. Following the blockade, Qatar quickly went about importing top breeds of dairy cows and installing them in specially designed air-conditioned farms in the desert. One such farm, Baladna, can hold 24,000 cattle. The domestic output of other agricultural produce, including poultry and fresh vegetables, has also grown markedly. “We are seeing a shift in Qatar economics and the entire region,” Yousuf Al-Jaida, CEO of the Qatar Financial Centre, told CNBC in 2018.

The response to the blockade has also involved forging economic ties with new markets. In April 2018, Qatar Petroleum signed a deal with Vietnam to supply the country with LNG and naphtha for the next 15 years. Later that same year, regular LNG shipments began making their way to Bangladesh. If the blockade was meant to leave Qatar economically isolated, it has not worked.

Another reason why it is difficult to hold Qatar to ransom is its sheer wealth. The kingdom lays claim to having one of the highest GDP per capita in the world, a consequence of having huge supplies of natural gas and a small population. The kingdom also enjoyed a stroke of luck in terms of the timing of the embargo: just a few months after the likes of Saudi Arabia and Egypt cut ties, Qatar was ready to officially open its new $7.4bn maritime port. Hamad Port is capable of handling 7.8 million tonnes of product annually, which has greatly increased the country’s import capacity. Previously, many goods had to first be exported to a nearby port in a neighbouring country, before then being re-exported on smaller vessels to Qatari ports.

Qatar has made a coordinated effort to reduce its reliance on gas and oil, promising to deliver a period of more reliable and sustainable growth

“This magnificent construction will be remembered in history as a sign of gratitude from this dignified nation to [Emir Al Thani] and HH the Father Emir Sheikh Hamad bin Khalifa Al Thani,” Qatari Minister of Transport and Communications Jassim Saif Ahmed Al Sulaiti said at the port’s inauguration. “This giant gateway carries HH the Father Emir’s name, which, in our memory and world memory, will be synonymous with the maker of miracles in this land. This would not have been achieved without the guiding directives and unlimited encouragement from HH the Emir and the active support from HE the Prime Minister and Minister of Interior [Al Thani]. Such great support has had a great impact in energising our drive and increasing the momentum for more work and dedication.”

The port, along with several other economic developments that had long been in the pipeline, helped the country to withstand the blockade without suffering significant economic damage, and may have even improved Qatar’s long-term prospects. As well as forcing the kingdom to speed up plans for self-sufficiency, it has shown international investors that its economy is more robust than many first thought.


Qatar’s Khalifa International Stadium is renovated ahead of the 2022 FIFA World Cup
Qatar’s Khalifa International Stadium is renovated ahead of the 2022 FIFA World Cup


Mixing things up
Qatar’s decision to ramp up domestic agriculture and other parts of the economy may have been precipitated by the blockade, but it is something that probably would have occurred sooner or later anyway. Like many of its fellow Gulf countries, Qatar has been working hard to diversify its economy for some time, being well aware that revenues from hydrocarbon production may not be reliable in the long term.

“Infrastructure spending continues apace in Qatar,” Bremner said. “Its position in the [World Bank’s] Human Capital Index is higher (60 out of 157) than the average for its region and continues to improve, while changes in its business environment earned it a spot in the top 20 global business environment improvers, according to the World Bank Group’s Doing Business 2020 report. Qatar ranks 77th on this year’s ease of doing business rankings, [up] from 83rd in 2019. Continued improvements in the ease of doing business in Qatar will drive entrepreneurship, which, in turn, will drive the transition towards a more diverse economy.”

Further, it is important to appreciate the significant return on investment generated by the Qatar Investment Authority (QIA), which also facilitates economic diversification. Last year, the QIA indicated that it would begin looking at investment opportunities in the technology, healthcare and industrial sectors. Such an approach will help transition the economy further away from oil and gas.

It is also worth considering that the potential damage caused by a fall in LNG prices will always remain a function of both a country’s breakeven price and its balance sheet. On both fronts, Qatar stands on relatively solid ground: according to Forbes, the country has a breakeven price of $55, which is relatively low, its balance sheet is strong and its government and banks are set to cushion the impact of LNG price falls. Even the most diversified economies are starting to endure large-scale economic damage, regardless of the source of their core income.

So, while Qatar is openly committed to diversifying its economy, the necessity is perhaps not as great as it is in other states where fossil fuels make up a significant proportion of the national income. There are only around 330,000 Qatari nationals, with the majority of the population made up of expatriates. The national government can easily afford to employ the vast majority of them within the public sector, using gas revenues to prop up the economy if it wants to.


Crisis management
Despite the long-term economic planning undertaken by Emir Al Thani, recent events have come as a shock to Qatar, as they have to all markets. The COVID-19 pandemic has rocked the global economy; markets that were tentatively hopeful of budgetary expansion have been pushed suddenly into recession. Qatar will still post a surplus this year – according to the IMF, anyway – but this does not mean that the country will emerge on the other side of the pandemic completely unscathed.

“How Qatar manages the threat posed by the coronavirus goes back to the country’s economic starting position before the pandemic,” Bremner explained to World Finance. “All affected countries are in the same storm, but not necessarily in the same boat. With its relatively strong economic position going into the pandemic, Qatar should emerge better than many countries.”

Emir Sheikh Tamim bin Hamad Al Thani
Emir Sheikh Tamim bin Hamad Al Thani

With economies buffeted by the coronavirus crisis, the oil market (which has a significant bearing on gas prices) has suffered greatly. A fall in demand, combined with a price spat between Russia and Saudi Arabia, saw oil’s value plummet in March. The global LNG industry is likewise expected to suffer its first seasonal contraction in demand since 2012, according to energy consultancy Wood Mackenzie. When, and if, this demand will pick up is difficult to determine at this point.

“It might be sagacious to consider the shape of economic recovery from COVID-19 especially from the point of view that countries… will gradually restore demand for LNG – ‘gradually’ being the operative word,” Bremner added. “Thus the shape of each recovery will be different and Qatar’s ability to manage different and multiple new demand patterns, especially those in its most prominent customers (South Korea, India, Japan and China), will determine the degree of threat to Qatar’s economy. There is little doubt about Qatar’s ability to manage the demand for LNG exports as pandemic-stricken economies emerge from lockdown.”

The effectiveness of monetary, fiscal and pandemic-related economic interventions in LNG-importing countries will be crucial, but this is outside Qatar’s control. Insofar as Qatar can insulate itself from the threat posed by COVID-19, the country has done so, including building new quarantine facilities and developing the infrastructure for remote learning and working. This means that Qatar faces the crisis from a position of relative economic strength.

In a recent pre-pandemic survey of Qatar, the IMF concluded that the country is “well placed to contain adverse macrofinancial implications of downside risks, reflecting substantial buffers and prudent policies”. As the COVID-19 pandemic continues to retard economies to varying degrees, there is no economic reason to assume that the country will struggle more than any other.

That isn’t to say Qatar doesn’t face unique challenges. The country has a difficult decision to make over whether to reduce its output of LNG while prices remain diminished or to engage in a battle for market share – one that may prove lucrative in the post-pandemic world. Australia would certainly be keen to take Qatar’s place as the world’s top LNG exporter, a title that the Gulf state would be loath to relinquish. There are also non-economic matters to attend to. In May, there were disputed reports of a coup taking place against the emir, and it remains to be seen whether it is possible for the embargo – in place for the best part of three years now – to be resolved.

Concerns surrounding COVID-19 and political disputes will also need to be resolved against the backdrop of the FIFA World Cup, which is currently set to come to Qatar in 2022. After reports of slave labour being used in the construction of some stadia and worries over fan behaviour in a conservative Islamic country, the eyes of the world will be watching – and judging – how Qatar deals with such a prestigious event.

Before the kingdom starts putting the final preparations in place for the tournament, however, it first needs to ensure its economy can withstand the turbulence that 2020 is set to throw at it. Reduced demand for natural gas will affect the country’s finances, even if the kingdom’s efforts to diversify the economy continue to go well. If the IMF’s positive prediction regarding Qatar’s economy is to come true this year, complacency is simply not an option.


National Vision 2030
In 2008, Qatar launched National Vision 2030 (QNV 2030), an ambitious development plan to transform the country into an advanced society by focusing on four central pillars:


Human development
Acutely aware that Qatar’s natural resources are finite, the national government wants the country to play a greater role in the knowledge-based economy of the future. To do so, it will need to significantly develop its talent base.

Improvements to education and healthcare are among the key ambitions of QNV 2030. Regarding the former, Qatar has earmarked QAR 22.1bn ($6.07bn) for the education sector this year, representing 10.5 percent of total government expenditure. School expansion and skill enrichment, particularly among Qataris, is viewed as essential.

A significant international role in intellectual activity and scientific research is also desired.


Social development
Among several important goals that form part of Qatar’s broader push for social development is the kingdom’s aims to reinforce strong family units and develop effective public institutions. To achieve this, organisations like the Doha International Family Institute (DIFI) have gained increased prominence.

Important research into areas such as adolescent wellbeing and the country’s work-life balance has been included in numerous reports published by the DIFI over the past few years. Empowering women is another core aim, and should build on the country’s previous successes: Qatar has the highest labour participation rate among women in the broader Arab region.


Economic development
One of the main factors that led to the launch of QNV 2030 was Qatar’s overreliance on its hydrocarbon resources for economic stability. As the world gradually moves towards greener resources, this vital revenue stream will diminish. As such, economic diversification is being prioritised, with the national government looking to encourage private enterprise and entrepreneurialism.

Founded in 2014, the Qatar Business Incubation Centre is supporting this aim by providing the largest mixed-use incubator facility in the MENA region. Infrastructure projects, such as the construction of the Doha Metro, and tourism gains – international arrivals have increased significantly over the past few years – point the way to the country’s new economic future.


Environmental development
Qatar, like many developing countries, is faced with a dilemma: by pursuing development, it risks damaging the natural environment. A delicate balancing act will therefore be required. This will involve the creation of a comprehensive urban development plan that takes sustainability into account to lessen any negative environmental effects.

To achieve this, Qatar has decided to align its Second National Development Strategy, which began in 2018 and will run until 2022, with the goals of the UN’s Sustainable Development Agenda. The kingdom has committed to preserving biodiversity, reducing waste and supporting international efforts to mitigate climate change.