Major projects in Qatar trigger rise in state spending

by  — 16 June 2013

With the 2022 FIFA World Cup less than a decade away, Qatar’s government is poised to speed up its infrastructure and development programme after raising expenditures on April 1 for the new financial year, writes Oxford Business Group’s Bill Sellars.

Qatar’s budget revenue figures are based on a cautious oil price of just USD65 per barrel, according to a statement by the ex-minister of economy and finance, Yousef Hussain Kamal.

Government spending has been increased by 18 percent in the budget for fiscal year 2013 to 2014. Interest from local players in the construction industry and related segments is expected to be high, with business leaders aware that investment levels will likely ease once the state projects are completed. 

The budget sets out spending of USD57.8 billion (QAR210.4 billion) against revenue of USD59.9 billion (QAR218 billion), leaving a surplus of USD2.1 billion (QAR7.6 billion). The budget’s revenue figures are based on a cautious oil price of just USD65 (QAR236.6) per barrel, according to a statement by the ex-minister of economy and finance, Yousef Hussain Kamal, to the QNA state news agency. 

Much of this year’s budget has been dedicated to infrastructure projects, with capital works set to take up around 30 percent of all spending. Infrastructure’s allocation is up 28 percent in a year-on-year comparison. Farah Ahmed Hersi, an economist with regional bank and finance house Masraf Al Rayan, said the lower budgetary surplus forecast for Qatar was not unexpected. “When external accounts are that healthy, there is a natural tendency to increase spending, and in doing so, you dig into your surplus,” he said in an interview with Reuters news agency on April 2. “The budget shows how serious the country is about speeding up infrastructure development to get ready for 2022.”

Increased expenditure

The government has already increased expenditure by almost a fifth this fiscal year. A report by the Qatar National Bank (QNB) suggests spending levels could rise even higher in the 12 months to end March 2014. The report, issued in mid-April, revealed the combined spending programmes outlined for the current financial year could push up expenditure to as much as QAR240.2 billion for the 2013 to 2014 budgetary cycle.

QAR 210.4 billion - Total spending by the government in 2013 to 2014 fiscal year.

Although the government is pumping more funds into the economy this year and looks set to maintain spending levels in the coming years, the ex-minister of economy and finance expects to scale down investment in the second half of the decade once several of the state’s big ticket projects are finalised. “The budget of course until the year 2015 or 2017 will be at the same level, but later on it could go down again because most of the infrastructure would be completed at that time,” Kamal said, after handing down the new budget.

However, some business leaders are concerned that not enough funds are finding their way into the domestic economy. Nasser Al Khaledy, the chief executive officer of mixed business and industrial firm Qatar-Oman Investment Company, pointed out that most of the work was going to foreign contractors. There are concerns firms may be hard-pressed to manage the workload that the infrastructure developments, which are valued at more than USD200 billion (QAR728 billion) and set to be rolled out over the next 10 years, will produce. 

Delays could have a knock-on effect on the programme, slowing other projects and forcing the government to put back plans to reduce spending. However, as long as Qatar’s projects are delivered on schedule, surpluses should start to rise once again after 2017.

Bill Sellars is an analyst at Oxford Business Group.

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