THE latest economic data from the government illustrates just how reliant Doha remains on oil for its economic well-being. The figures contained in an offering circular, produced by Credit Suisse First Boston and JP Morgan Securities for a proposed bond issue, show that in 1997 the energy sector contributed 38 per cent of total gross domestic product (GDP), provided the government with an estimated 71 per cent of its revenue and accounted for almost 89 per cent of all exports.

Rising oil production has been the catalyst for Qatar's economic recovery over the past two years. Average oil output jumped by almost 117,000 barrels a day (b/d) to 617,000 b/d in 1997, as a result of new capacity brought on stream by Qatar General Petroleum Corporation (QGPC) and its foreign partners. Of the total, QGPC's share was 500,000 b/d, an increase of 64,000 b/d over 1996, while the remainder was shared among the handful of foreign producers, that have production sharing agreements (see page 29).

The rise in QGPC production more than offset the $1 a barrel fall in the average export price of Qatari crude. In 1997, the state-owned oil and gas company saw sales rise by 6 per cent to QR 13,699 million, while net income climbed by 22 per cent to QR 2,756 million.

This year's outlook is very different, however. The latest oil price crash has hit Qatar on two fronts. The average oil price will be lucky to reach $13 a barrel this year, a 30 per cent fall from 1997. At the same time, the rate of growth in oil production will inevitably slacken. Including condensate output, QGPC had been banking on average daily production of 764,000 b/d and, in February and March, output reached 700,000 b/d for the first time.

However, it slipped back to an estimated 670,000 b/d in June and 650,000 b/d in July, as a result of Doha agreeing to a 60,000 b/d cut in output as part of OPEC efforts to stem the price slide.

Significantly, the OPEC cuts have been made from actual production rather than Qatar's quota, which stands at 414,000 b/d. The distinction suggests that OPEC now recognises Qatar's existing quota is inadequate to meet its financial needs. Doha has also benefited from the fact that it is a small producer within the organisation. As a result, it has managed to avoid accusations of over-production unlike OPEC heavyweights, Venezuela and Iran.

Initial reports had suggested that QGPC alone would bear the brunt of the OPEC production cuts, as part of efforts to maintain foreign investment in its fields. However, the offering circular stated that the reductions would be shared by both QGPC and its international partners on a pro-rata basis. This appears to have been borne out by the largest foreign producer, Occidental Petroleum, which has reportedly reduced production by 10,000 b/d to an estimated 121,000 b/d at the offshore Idd al-Shargi North Dome.

The latest government estimates indicate that Qatar recorded growth of just 2.9 per cent in 1997. This is well below previous estimates, including the IMF forecast of 18 months ago, which predicted that Qatar would have one of the fastest growing economies in the world last year at almost 15 per cent. Again, the weakening oil price in the second half of the year was cited as the deciding factor in the

revision.

Even with a net rise in oil production in 1998, economists estimate that Doha will require an average oil price of about $14.50 a barrel to maintain the recent growth trend. The forecast does not take into account the recently announced short-term sales by Qatar Liquefied Gas Company (Qatargas) to Spain and Turkey. These will add a further 800,000 tonnes to the 2.8 million tonnes to be delivered in 1998 to Japan.

Rising liquefied natural gas (LNG) sales will make an increasingly strong impact on Qatar's trade balance over the coming four years. LNG exports are set to rise to 5.4 million tonnes in 1999, before jumping to 9.4 million tonnes in 2000 and 10.3 million tonnes in 2001. Nevertheless, the government will have to wait somewhat longer to enjoy the full fruits of its investments in the sector. A total of $8,500 million has been invested in Qatargas and Ras Laffan LNG Company (Rasgas), an estimated 70 per cent of which has been secured through long-term borrowings.

Qatar's total external debt stood at an estimated $8,595 million at the end of 1997, up from $7,181 million a year before. Of this amount, $2,239 million was classified as government debt, incurred to finance the budget deficit and the construction of some infrastructure. The remaining debt has been accumulated by QGPC and its subsidiaries in developing new LNG and industrial capacity. Since nearly all of its development schemes have been financed on a non-recourse basis, the government is not the guarantor of the debt. Instead, the international banking community and shareholders are carrying the risk.

Even so, the government is entering a period when its own debt service obligations will rise. This year, repayments are set to double to an estimated $375 million. In fiscal 1999, they will increase to $507 million and reach $645 million in 2000. Relief will only come in 2003, when repayments fall back to $334 million.

More sovereign borrowings are inevitable, as Doha is set to run up a substantial budget deficit this year. In fiscal 1998/99 revenues are budgeted to drop by 15.3 per cent to $3,394 million from the actual preliminary figure of $4,009 million recorded in the previous financial year. The budgeted estimate is based on an average crude price of $13 a barrel and average output of 610,000 b/d. On the expenditure side, the government has budgeted spending at $4,301 million, which is 7.7 per cent less than the estimated actual figure for 1997/98. That will leave a budgeted deficit of $907 million, up 43 per cent on the previous year.

Qatar's current account position is also destined to deteriorate this year. In both 1996 and 1997, the deficit stood at about $2,600 million, despite substantial increases in the value of oil exports. These will undoubtedly fall, while the large deficit in services is expected to remain high as Doha continues to make substantial payments to foreign contractors and engineers involved in its ongoing industrial investment programme.