As rising hydrocarbon prices set to bolster Qatar’s revenues, Fitch Solutions has revised its 2021 forecast for the country’s fiscal surplus from 2.3% of GDP to 4%.
This represents an upward revision from Fitch Solutions previous forecast of 2.4% of GDP, as its Oil & Gas team now expects Brent to average $66 per barrel in 2021 from an initial forecast of $53/b at the start of the year.
Fitch Solutions’ forecast is also significantly more bullish than the Qatari government, which in the 2021 State Budget projects a fiscal deficit of 6% on the assumption of a conservative average Brent price of $40/b.
While the stronger hydrocarbon prices may prompt Qatar to increase spending modestly, we believe a significant increase is fairly unlikely.
Indeed, latest Q121 data released by the government show continued strict abidance with the fiscal targets set in Qatar's five-year Second National Development Strategy, set to expire in 2022.
Qatar's fiscal position will benefit from rising energy prices on the back of a global economic recovery. A combination of tight supply management of oil markets by Opec+ coupled with a pick-up in the global vaccinations and bullish market sentiment have already prompted a rebound in global energy prices, with Brent trading at $68.7/b on May 25, from an average of $43.2/b in 2020. The coming online of a new phase of the Barzan gas field in Q121 will also contribute to the country's growth in revenues, with Fitch Solutions’ team forecasting gas output to increase 5% in 2021.
As hydrocarbons account for over 80% of the total revenues, with the majority stemming from natural gas exports, the combined increase in hydrocarbon prices and production will offer significant tailwinds to Qatar's fiscal intakes.
“Thus, we forecast oil revenues to bounce back from a 21.6% contraction in 2020 to a 30.5% growth in 2021,” Fitch Solutions’ said.
Fitch Solutions also expect non-oil revenues to grow, forecasting a 9.0% increase, well above the five-year average of 3.5%. Increased business profits due to the country's economic recovery, will feed through to larger tax intakes, offering tailwinds starting in Q2, 2021, when most corporate taxes are due.
“Overall, we forecast total revenues to bounce back to pre-Covid levels in nominal terms, growing 25.8% following a 20.4% decrease in 2020,” Fitch Solutions said.
Given a sizeable fiscal surplus and rebound in growth, it forecasts Qatar's debt-to-GDP to decrease from a record high 71.8% in 2020 to 61.3% in 2021.
While the country's debt remains above the Gulf Co-operation Council average of 52.1%, and around two-thirds is denominated in foreign currency, several factors will help to mitigate fiscal risks, Fitch Solutions noted.
First, the Qatar Central Bank's well positioned to continue to defend the fixed exchange rate, limiting currency-related risks. Second, the country retains sizeable financial assets, not least the approximately $295bn held by its sovereign wealth fund (200% of GDP).
Over the medium term, Fitch Solutions’ expect steady improvement in Qatar's fiscal dynamics, with debt likely to decrease steadily, dropping below 50% of GDP by 2025.
The country's growing market share in the global gas market and coming online of new gas fields such as the New North Field in 2025 will help to structurally boost revenues, while efforts to reduce reliance on the non-hydrocarbon sector will offer further tailwinds to fiscal intakes, it said.
Related Story