The economy of Qatar is one of the smallest and least diversified in the Middle East. According to new Central Bank of Qatar figures, gross domestic product (GDP) was worth $7,602 million in 1995, the second smallest figure in the GCC ahead of Bahrain. Oil accounts for one-third of national output, but the whole economy is dependent upon the ebb and flow of revenues generated by Qatar’s hydrocarbon industry.

Happily for the people of Qatar, national income is spread around only 550,000 people, including more than 200,000 foreigners. This means that national income per capita in 1995 was almost $14,000, one of the highest in the world. Qatari nationals, the main beneficiaries of national income, are on average among the wealthiest in the world with living standards that compare favourably with those enjoyed by the professional middle classes of Europe and North America.

From 1997, Qatar will start enjoying the fruits of gas exports and this suggests that, if anything, Qatar will become more rather than less dependent on energy exports in the 21st century. Manufacturing industry accounted for almost 12 per cent of total output in 1995. Finance, insurance and real estate was the largest individual service sector, providing 11 per cent of national income.

The central bank provides figures for nominal GDP growth to 1995 which show that economic expansion in the 1990s has been modest. In 1991-95, the economy expanded by just 3 per cent in nominal terms. Over the same period, consumer price inflation was more than 11 per cent and this suggests there was a substantial contraction in economic activity in the first half of the 1990s.

The budget. Figures in the annual report show that the government recorded substantial deficits in 1991/92-1995/96. The shortfall reached a peak of QR 2,818 million ($774 million) in 1993/94. This was equivalent to 10.5 per cent of GDP that year. For most of this period, government revenue was flat. The government managed to cap spending in 1995/96, but mainly by cutting capital expenditure to its lowest level in the 1990s. The spending programme for 1996/97 shows total expenditure rising by 17 per cent from estimated actual levels in the previous 12 months. Revenue is projected to rise by 12 per cent with the result that the deficit is projected to rise to a record level of QR 2,950 million ($810 million), equivalent to just over 10 per cent of forecast GDP in the year. At least part of the increase can be attributed to higher spending on capital projects, essential to validate the development of gas export industries. Analysts say the only comforting factor is Qatar’s tendency to spend less than envisaged. The revenue projection also seems to be based on a comparatively modest oil price projection. In fact, most of the deficit could be wiped out by the impact of the oil price increase windfall and careful budgetary policy.

Balance of payments. Trends in the budget are reflected in the balance of payments. Historically, Qatar has had a trade balance that was more than offset by a services and transfers deficit. The record for the 1990s shows this trend continuing. However, the surge in spending associated with project expenditures pushed imports up to almost QR 10,000 million ($2,750 million) in 1995. As a result the trade surplus slumped to under QR 2,000 million ($550 million) – the lowest level so far in the 1990s. The current account deficit rose to almost QR 7,000 million ($1,923 million), equivalent to 25 per cent of 1995 GDP. The central bank includes a projection for 1996. This shows that the trade balance will swing into deficit for the first time in the modern era. As a consequence, the current account deficit is projected to rise to QR 13,056 million ($3,600 million), equivalent to an unheard of 45 per cent of GDP. The central bank forecasts that the deficit will be financed from capital transfers with only a modest adjustment to reserves.

Banking system. The domestic banking system expanded steadily in the first half of the 1990s and total assets grew by 6 per cent in 1995. Domestic credit in the year rose to QR 19,147.1 million ($5,260 million), equivalent to 5 per cent of GDP. Money supply growth has generally followed trends in nominal national income. However, there have been strong shifts between M1 and M2, which includes interest-bearing deposits. In 1995, the M2 money aggregate expanded by 1.1 per cent, the lowest figure in the 1990s and a sign of the low level of activity in the economy. Probably the only good piece of news in the annual report is the fact that inflation in Qatar has been low. In 1995, the consumer price index rose by 3 per cent.

Outlook. The central bank report sheds fresh light on the disappointing trends in the Qatari economy in the first half of the 1990s and the impact on its finances of its effort to develop its natural gas resources. This era is now coming to an end as past investment starts to pay off. This has been acknowledged by the IMF in its 1996 Article IV report which showed Qatar incurring heavy deficits until the end of the decade when balance starts to be restored (see table for details). For this reason, the 1995 central bank report probably catches Qatar at its most vulnerable: spending heavily on future schemes with no countervailing income to show for it. The future will be different.