DOHA: Qatar’s high government capital spending on huge multi-year projects will continue to stimulate the country’s non-hydrocarbon sector, said the ratings agency Fitch in its latest “GCC Sovereign Credit Review”.
With a projected 7.6 percent, Qatar has been forecast to have the highest growth rate in the real non-oil growth in the region. Qatar is followed by Oman and Saudi Arabia (6.5 percent each). Qatar’s current account balance for 2013 is forecast to grow 32.9 percent of its GDP, next to Kuwait’s 38.4 percent.
Qatar’s GDP is set to grow 4.5 percent this year, the ratings agency noted.
On Monday, the Minister of Economy and Finance H E Yousuf Hussein Kamal said Qatar’s non-hydrocarbon sector’s contribution to GDP has been steadily rising over the past several quarters and is expected to maintain its last year’s growth rate of 9 percent.
In Fitch’s view, Qatar’s inflationary pressures are broadening, with rapid growth in the expatriate population.
January 2013 saw 8.2 percent year-on-year growth in the country’s population rate, reviving the rentals.
Though Qatar has developed a domestic debt market, the funding of substantial infrastructure spending is driving up its external debt, it noted.
High oil production and prices will continue to be the key driver of the region’s robust non-oil growth.
Oil market trends remain supportive for the region, though less so than in 2012. As a result of tight fundamentals and generally improving sentiment about the global economy, Fitch has raised its Brent oil price forecast to $105 per barrel for this year.
However, Saudi Arabia has sharply cut back oil production so far this year and with other regional producers at close to capacity the oil sector will be a drag on overall economic growth across GCC sovereigns this year.
High oil revenue will allow GCC governments to impart further stimulus.
Budgets for some member countries this year are expansionary and buoyant spending will be bolstered by high levels of business and consumer confidence and healthy growth in bank lending.
The region’s long-standing exchange rate pegs to the US dollar will remain in place over the medium term. Dollar pegs and open capital accounts compel GCC countries to set interest rates closely in line with US rate.
The GCC’s monetary policy flexibility is increasing modestly owing to greater use of deeper domestic debt markets.
The member-countries’ fiscal policy remains dominant and monetary transmission mechanism is weak, the ratings agency noted.