Hydrocarbon revenue gains will push Qatar Government to boost spending; Fitch Solutions said and noted the increase will be relatively conservative, in line with the projected expenditure growth outlined in the 2021 State Budget.
In its ‘Middle East Monitor’, Fitch Solutions said Qatar’s headline expenditures are expected to “rebound modestly” by 4.6% following a “sharp contraction” of 12.6% in 2020.
Although this represents an upward revision from Fitch Solutions’ previous forecast of 3.9%, as hydrocarbon revenue gains will push the government to boost spending, the researcher believes the increase will be relatively conservative, in line with the projected expenditure growth outlined in the 2021 State Budget.
In the latest report released by the Ministry of Finance, Q1, 2021 total expenditures registered a 6.3%y-o-y decrease.
The report highlights the decline in expenditures is mostly a result of extensive cuts in administrative and staffing expenses by the government over the course of 2020.
“And we do not expect these cuts will be reversed in 2021 given the ongoing commitment to spending rationalisation outlined in the 2017-2022 National Development Strategy.
“While increased payments related to preparations for the FIFA World Cup Qatar 2022 will offer modest tailwinds to recurrent spending, we expect it will grow by just 2.3%.”
At the same time, Fitch Solutions’ forecasts capital spending to increase by 8.5%, less than the 13.8% growth projected by the 2021 State Budget after Q1, 2021 data showed a significant 6.5% y-o-y decrease in capital spending.
While we believe that a larger number of contracts will be awarded starting in H2, 2021, boosting spending figures, Fitch Solutions’ do not believe it will be sufficient to drive capital spending growth into the double digits.
Over a multi-quarter time frame, Fitch Solutions’ expect a portion of the capital spending that the government once included on their balance sheets will be effectively transferred to state-owned enterprises and public agencies, which are taking a more active role in financing large projects.
“Recent news of a $10bn bond issued by state energy company Qatar Petroleum to expand the North Field reinforces our view. While historically this type of investment has been carried out directly by the government, we are seeing a growing trend across the Middle East and North Africa, of state-owned enterprises funding major projects, especially in the hydrocarbon space,” Fitch Solutions’ said.