By Santhosh V Perumal

Qatar yesterday cautioned that a prolonged weakening of oil prices could pose a key downside risk to the economic outlook.

“The economic outlook for 2014–2016 is still generally favourable, although falling oil prices could be a key downside external risk if they persist for long,” Ministry of Development Planning and Statistics said in its Qatar Economic Outlook (QEO) 2014-16 update.

However, the impact of falling oil prices on the wider economy is likely to be shielded by the available fiscal headroom, it said, referring to the break even prices of $42 and $55 in 2014 and 2015.

A recent report said oil prices could go as low as $55 a barrel next week. Organisation of Petroleum Exporting Countries (Opec) recently trimmed its 2015 demand forecast due to weaker outlook for Europe and Asia as well as higher supply from the US shale and other non-Opec sources.

For given levels of hydrocarbon output, government spending and non-hydrocarbon fiscal revenue (including investment income received from Qatar Petroleum), the break-even price could generate enough hydrocarbon revenues to fund the non-hydrocarbon deficit.

Break-even prices at these levels provide a “large cushion” over market prices as of mid-November 2014, the ministry said.

These revised break-even prices are lower than those reported in June’s QEO for 2014 and 2015 owing to the larger investment income that the Ministry of Finance (MoF) has received from QP in 2014 than foreseen in June. For fiscal 2014-15, this investment income has already been realised and so will not be affected by the recent decline in oil prices.

In 2016, however, the break-even price is expected to ratchet up to about $71 as government expenditure continues to grow, oil production declines and QP’s financial surplus moderates, the update said.

“Yet the projected breakeven price remains significantly below the latest consensus forecasts for oil prices in 2016, and if required the state’s large financial reserves could be deployed to shore up planned spending,” the report added.

The ministry also cautioned that if QP’s future financial surpluses and investment income received on the budget were “adversely affected” by lower oil prices, the implied fiscal break-even prices would in the near term be higher, it said, adding with investment income linked to oil prices, the breakeven price could be $70 in 2015, rising to $81 by 2016.

Longer term, continued moves to build a sound fiscal position capable of absorbing oil price shocks will be supported by the MoF initiatives on forward-looking fiscal policy guidance and modernised budgetary processes, it said.

Government spending has risen not only in Qatar, but across the Gulf Cooperation Council (GCC) countries since 2009, supported by stable and high oil prices.

Although the Brent oil rose close to 76% between 2009 and 2013, government expenditures climbed 77.7% on average across all six member states over the period.

 

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