QNB Capital’s new report, “Qatar Economic Insight”, forecasts strong growth in Qatar’s current account surplus. This is largely because of a surge in export earnings.
The current account is a measure of current flows of foreign currency into and out of the economy, related to the transaction for goods and services, as well as investment income and salary transfers. Most of Qatar’s foreign currency inflows come from receipts for the payments made for the exports of goods. Export inflows are partly offset by outflows of payments for goods imports.
Rapid gas-based industrialisation has delivered 20% annual growth in export earnings since 2006, and they are forecast to grow even faster in 2011-12. QNB Capital forecasts that export earnings will rise sharply from US$72bn in 2010 to US$113bn (an annual growth of 25%) in 2012, of which 66% will be gas-related, up from just 38% in 2006.
The gas-related exports are dominated by liquefied natural gas (LNG). Qatar’s LNG companies, Qatargas and RasGas, are now operating at their full production capacity of 77m tonnes a year. Qatar also exports piped gas, gas-to-liquids and condensates.
Crude oil remains an important component of exports, particularly given the high level of oil prices currently. However, crude oil production has not grown as strongly as gas production, and will only provide a quarter of Qatar’s export earnings in 2012, down from over a half in 2006.
Non-oil and gas exports have been growing steadily and will pick up sharply in 2011-12, as new capacity comes on-stream. About three-quarters of these exports are plastics, chemicals and fertilisers, all manufactured from hydrocarbon feedstock. Most of the remainder are metals, particularly aluminium from the recently commissioned Qatalum plant, as well as steel
Imports peaked in 2008 and have declined in the last two years. QNB Capital forecasts that they will only increase slightly in 2011-12, to an average of US$25bn. The main reason for this is that demand for machinery imports are forecast to soften, following the completion of many of Qatar’s major industrial projects, particularly the LNG supertrains.
Imports of consumer goods, however, will continue to grow, as will imports of construction materials for infrastructure and real estate projects.
In 2010, for the first time, the majority of foreign currency outflows were payments in the “non-physical” account, rather than for imports of physical goods. These include payments for services provided by foreign firms, money spent abroad by Qatari tourists, remittance transfers by expatriate workers and income repatriation by foreign companies.
This trend is forecast to continue as non-physical payments grow more rapidly than imports. However, the deficits will shrink as a proportion of GDP in 2011-12, because of rapid GDP growth, while exports will keep pace with GDP growth.
In summary, rising exports combined with only small increases in imports and non-physical payments will cause the net current account surplus to rise sharply. QNB Capital forecasts that it will increase to an average of 30% of GDP in 2011-12, peaking at US$59bn in 2012, more than quadruple its average in 2006-10.
The strong current account surplus, one of the highest in the world, underpins Qatar’s economy. The surplus will largely be used to fund investment abroad by private companies, individuals and government related entities. This will build up the foreign asset base which will continue to boost Qatar’s foreign income.