Qatar’s diversification efforts earn top marks

Qatar’s move to diversify away from oil and pursue a privatisation programme has been commended by Moody’s Investors Service in its annual credit report on Qatar.

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By  Massoud Derhally Published  April 24, 2003

Qatar’s move to diversify away from oil and pursue a privatisation programme has been commended by Moody’s Investors Service in its annual credit report on Qatar.

The emirate which has Qatar possesses the world’s second-largest gas reserves has gained from its investment in liquefied natural gas (LNG) whose contribution to the country’s GDP is expected to rise steadily, on par with oil revenues. The government has signed several long-term supply agreements including the Dolphin project that will pipe gas to the UAE and Oman.

“OPEC quotas do not restrict gas production,” explains Bernard Musyck, a Moody’s vice president and author of the report. “Qatar is also playing a leading role in developing the evolving technology of gas-to-liquid (GTL),” he adds.

In addition, several government-owned companies have been privatised, including power and water desalination plants. “The philosophy behind the privatisation process is the creation of new opportunities in the private sector, which has traditionally been dominated by a narrow economic basis comprising trade and real estate,” Musyck explains.

Qatar has enjoyed a budget surplus since 2001, after several years of budget deficits, says Moody’s. Fiscal management has generally been prudent and the borrowing requirements of the government have been modest relative to the growth performance of the economy. On the spending side, the government plans to reform the generous welfare system, which is currently in place by gradually replacing the subsidies on water, and electricity consumption with government grants to poorer families. A national pension scheme is also being considered.

Moody’s notes that in early 2003, Qatar’s total direct government debt (internal and external) amounted to USD9.2 billion or 48.9% of GDP. The level of the debt peaked in 1999 at 58% and is now expected to decline. In most cases the borrowings are directly linked to the projected export earnings of the borrowing entities. “Qatar’s philosophy is to continue to have a (rolling) debt, new projects replacing older projects financed with external funds, as long as market conditions make this option viable,” Musyck concludes.

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