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Gas-Rich Qatar to Base Budget on $40 Oil to Protect Finances

Bloomberg logo Bloomberg 11/3/2020 Zainab Fattah
Sheikh Tamim bin Hamad Al Thani © Photographer: Alexander Hassenstein/Getty Images Europe Sheikh Tamim bin Hamad Al Thani

(Bloomberg) -- Qatar will base its budget on an oil price of $40 a barrel, below what markets expect, as the world’s biggest exporter of liquefied natural gas seeks to reduce the impact on its finances, according to its ruler.

The move will help Qatar “avoid negative economic consequences due to oil-price volatility,” Emir Sheikh Tamim bin Hamad Al Thani told members of the country’s legislative body, the Shura Council, on Tuesday.

The price of oil is closely linked to that of natural gas. Still, gas has fared better amid this year’s coronavirus-triggered slump in energy prices, helping Qatar weather the fallout more easily than oil-dependent neighbors such as Saudi Arabia and Kuwait.

Early results show that Qatar’s budget deficit for the first half of the year is 1.5 billion riyals ($406 million) despite expectations it would be much higher, the emir said.

At the beginning of the year, the government planned to run a slight surplus on the assumption that oil would average $55 a barrel, and the International Monetary Fund predicted an even rosier outlook.

But Qatar, which has faced a trade and political boycott by three of its Gulf neighbors since 2017, has had to prop up businesses and guarantee wages during the coronavirus pandemic with its revenues diminished by the drop in energy prices.

Brent crude has fallen 39% this year to $40.20 a barrel. It is expected to average $48.90 a barrel next year and $50 in the final quarter of 2021, according to the consensus of analysts surveyed by Bloomberg.

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Qatar’s economy had its worst performance since at least 2012 during the second quarter amid lockdown measures to combat the coronavirus. The IMF projects gross domestic product will fall 4.5% this year, the smallest contraction among Arab Gulf states.

Qatar’s budget deficit is projected to equal 7.2% of gross domestic product this year, according to a Bloomberg survey of five economists whose forecasts varied widely.

Council Elections

In his speech, the emir said the first elections to the Shura Council in more than 15 years would be held in October 2021. The body advises on the country’s budget and can propose legislation, but the the emir retains the final say over policy.

The constitution allows for Qataris to elect two-thirds of the council’s 45 members, while the emir can appoint the remaining 15.

Read More: Qatar Prepares for Legislative Elections After 15-Year Delay

(Updates with gas prices in third paragraph.)

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