Qatar’s large infrastructure investment program would be sustainable, even if oil prices fell considerably further. Brent crude oil prices have dropped from a peak of USD115/barrel in June 2014 to about USD82 currently. This has raised speculation about the impact of falling oil prices on hydrocarbon exporting countries. In Qatar, oil prices would have to fall considerably further to have any impact on the infrastructure investment program that is expected to drive economic growth over the next few years. Our assessment is based on fiscal breakeven prices (the oil prices at which the government budget would be in balance), which is estimated to be well below current oil prices.
Qatar is currently implementing a large infrastructure investment program in the run-up to the 2022 World Cup and in line with its 2030 Vision to diversify the economy away from dependence on hydrocarbons. The government has recently announced USD182bn for project implementation outside the oil and gas sector over the next five years. The largest projects include several major real estate developments (Lusail, The Pearl Qatar and Musheireb for example), a new metro and rail network as well as new roads and highways. These major projects are creating large numbers of jobs leading to high population growth (annual average of 9.2% in the first ten months of 2014). This is expected to drive GDP growth throughout the non-hydrocarbon sector, thereby supporting diversification.
The government expects to finance infrastructure investments predominantly through revenue from hydrocarbon exports. With fiscal and current account surpluses of 15.6% and 30.9% of GDP respectively in 2013, ample resources should be available. The question is how far would oil prices have to fall to push the fiscal balance into deficit and force the government to cut back on its investment plans? Based on 2013 data, we estimate that the fiscal breakeven price—the oil price at which government expenditure would equal government revenue—was USD67/barrel. Our estimates are based on the impact of a change in oil prices while everything else remains constant (such as hydrocarbon production) with the exception of gas prices, which we assume fall in line with oil prices.
Even if oil prices did fall below USD67/barrel, they would have to remain depressed for some time to have an impact on the investment program. Qatar has the resources to draw on before being forced to make any significant cut backs to domestic investment. However, should oil prices remain low for a considerable time, a prioritization process is likely to be implemented to ensure the completion of key projects. To conclude, even though oil prices have fallen almost 30% since their June highs, Qatar retains the capacity to finance its infrastructure investment program. Therefore, it is expected that strong economic growth will continue, driven by the infrastructure investment program.