Global expect that Qatar would continue to record strong trade surplus in 2005

Global Investment House – Qatar Economic & Strategic Outlook III – Current Account and Monetary Policy - Qatar enjoyed growing trade surplus for the last several years with the main revenues for the country coming from exports of oil and gas. Buoyant oil prices throughout last year resulted in the exports (estimated) of the country increase by a robust 39.6% in 2004 to QR68bn, which was about 65.7% of the country’s GDP for the year. Import bill of the country increased by 24.1% in 2004 to QR19.7bn, leaving the merchandise trade surplus at QR48.3bn, which registered a staggering growth of 47% over the preceding year. The increase in the exports could be attributed to strong crude oil prices and also to the increased volume of petroleum and related products.

The exports data for the year 2004 suggests that the chief export items, oil, gas & related products, accounted for around 83.7% of the total exports which was around 81.9% of the total exports in 2003. The top export trade partners for <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Qatar in 2004 were Japan, South Korea, Singapore, India, and Spain. Japan alone accounted for around 41% of the total export revenues of the country.

The main import items of Qatar consist largely of vehicles, aircrafts and other forms of  mechanized transport, machinery, tools, electrical equipments, spare parts and electrical appliances. Over the last five years, Qatar’s imports have witnessed significant jump which increased from QR10.7bn in 2000 to QR19.7bn in 2004, a CAGR of 17%. The increase was mainly due to the rapid industrial and infrastructure expansion in the State. In 2004, France displaced USA and emerged as the top exporter to Qatar, alone accounting for 27% of the total imports. This was mainly because of the purchase of a number of Airbus aircraft for Qatar Airways. The top import trade partners for Qatar included France, USA, Saudi Arabia, UAE and Germany.

Among the other components of current account, the year 2004 witnessed an increase of 2% in its net outflow on account of services at QR4.47bn and income outflow witnessed dramatic rise at QR8.2bn from QR1.5bn in 2003. Outflow on account of transfers also witnessed significant jump of 36.6% to QR8.2bn from QR6n in 2003 because of the increased remittances by the expatriate workers. In 2004, after taking into consideration all these outflows, the current account surplus saw a growth of 31.2% to QR27.5bn as compared to QR20.9bn in 2003. Capital & financial accounts deficit witnessed significant growth of about 138% to QR13.2bn in 2004 from QR5.5bn in 2003. This resulted in a decline of 7.2% in its balance of payments surplus which stood at QR14.3bn in 2004.

We, at Global, expect that Qatar would continue to record strong trade surplus in 2005 and also in 2006 as volumes of LNG and oil export are likely to increase due to the expected increase in production.  Export revenue is likely to get affected as oil prices are likely to soften in the coming years, after remaining in high terrain in the last few years. However, increasing volumes of  LNG and oil will partially offset the effect of softening oil prices.

Balance of Payments

*Preliminary estimates

Source : Qatar Central Bank

The Qatar Central Bank’s (QCB) monetary policy will remain focused on maintaining long term peg between the Qatari Riyal and the US Dollar at QR3.64:US$1. Keeping in line with this, the QCB will continue to adjust its discount rate in line with the US Federal Reserve rates. Therefore, the QCB has been regularly adjusting its rates depending on the moves by the Fed Reserve. Recently, in November 2005, the QCB raised its interest rates. QCB Rate on loans increased from 4.20% to 4.25% and on deposits from 4% to 4.15%. However, it kept the Repo Rate unchanged at 4.85%. Going forward, further increases in the US Fed rates are likely and therefore the rates in Qatar are likely to go up. The growing inflation rate in Qatar is also supporting this argument and is likely to go up further. It is also likely that the QCB may tap the bond market to bring down excess liquidity from the system and thereby check on any significant increase in the rate of inflation.

In 2004, M1 (narrow money supply) grew by 29% to QR14.6bn which was backed by 21% growth in currency in circulation to QR2.6bn and 31% growth registered in demand deposits to QR12bn. The strong growth in M1 also reveals that the level of consumption has picked-up in the last few years. Over the five year period, 2000-2004, M1 has grown at a faster CAGR of 31% while M2 (broad money supply) has grown at a CAGR of 12%. At the end of 2004, M2 was at QR44.9bn, recorded a yearly growth of 20%. In the broad money supply time deposits registered a growth of 15% to QR20.6bn from QR17.9bn in 2003. The reason behind the lower growth rate in time deposits as compared to demand deposits can be attributed to the preference of Qataris to invest their funds in liquid assets. Deposits in foreign currencies grew by 21% in 2004 to QR9.6bn. The Quasi money grew to QR30.3bn in 2004 from QR25.9bn in 2003, registering a growth of 17%.  During the first nine months of 2005, M1 witnessed significant jump of 28.5% over 2004 year end level to reach QR18.8bn. This growth was chiefly backed by an increase of 32% in demand deposits which stood at QR15.8bn. M2 grew by 27% in 9 months of 2005 over 2004 year end level and stood at QR56.97bn. The reasons behind the increased liquidity in 2004 and also in nine months of 2005 were the growing credit facilities to various large scale projects and high oil and gas prices.

Money Supply

Source : Qatar Central Bank