Activity in Qatar proved resilient in 2016 but is showing signs of slowing. The oil and gas sectors, suffering from the fall in energy prices, were operating in the red as of the beginning of 2016. They should however help support growth in 2017 with the start of production at the Barzan facility which is expected to increase liquid gas production by 21%. In 2017, the non-oil and gas economy will be mainly driven by the construction and services sectors. Construction sector remains one of the leading beneficiaries of the Qatari government’s investment policy for the FIFA World Cup 2022. Although a moratorium has been imposed on new projects, already scheduled investments are substantial and estimated at the equivalent of almost USD 180 billion. Finally, the services sector which includes financial services, property and telecommunications, should see strong growth in 2017. Inflation is likely to increase. The widespread rise in prices in 2016 was essentially a result of the increase in fuel prices following the government’s fuel subsidy cut. Additional taxes as well as the withdrawal of some subsidies are likely to continue driving inflation up in 2017.

The public balance dropped into its first deficit in over 15 years. Budget income, dependent both on oil and gas revenues (more than 40% of total budget revenues) and investment income—largely the financial surplus of Qatar Petroleum, was doubly hit by the fall in the price per barrel in 2016. Thus, the slower growth in public spending will struggle to make up for the contraction in revenues. The public deficit is likely to widen in 2017. The government is however intending to limit capital spending by scaling back non-priority projects as to reduce current spending. Among measures, they also intend to enlarge the tax base through a uniform VAT rate across all GCC countries and increase the prices of public services. Despite Qatar’s very substantial assets, the country is planning on financing the public deficit with debt. The public debt is therefore likely to increase significantly as of 2016. As borrowing in the domestic market is problematic, the authorities are essentially targeting the international markets and foreign banks. Qatari banks remain well capitalized, and profitable despite the impact of declining oil and gas revenues on the banking system. The tightening in US monetary policy at the end of the year and the amount of capital already committed to the country’s infrastructure projects continues to limit the accumulation of deposits and increases the risks in terms of the banks’ liquidity levels. In addition, the rapid increase in the ratio of risk-weighted assets and the policy of high dividend payments means that the banks have had to undertake capital increases. The expansion of the banking system could be reaching a peak and the banks are beginning to experience pressures on their margins. Qatar’s external accounts have felt the full impact of the fall in oil and gas prices that represent the largest proportion of the country’s exports. The current account balance should nevertheless improve slightly in 2017. The foreign trade surplus is likely to shrink significantly and account for just 22% of GDP in 2017. However, the income balance is expected to continue in deficit but at a lower level. The slowdown in the outward flow of investments abroad from Qatar and the increase in the gross external debt will result in a reduction in the financial account deficit. The large size of Qatari financial reserves should also allow it to maintain its pegging to the dollar.

Led by the Emir Tamim bin Hamad Al Thani of the reigning Al Thani family, Qatar is one of the most stable countries in the region. The small Emirate is also characterised by good governance, comparable to the United Arab Emirates. It is also renowned for its diplomatic ambitions and the living conditions of its foreign workers. It was among others a leading player in the Arab Spring through in particular its financial support for the Muslin Brotherhood. Nevertheless, this positioning in the region has undermined its image on the international stage. The holding of the 2022 World Cup is part of its bid to improve its image.