QATAR ANNOUNCES RECORD BUDGET OF USD 28 BILLION

UNCLAS SECTION 01 OF 02 DOHA 000375

SIPDIS

E.O. 12958: N/A
TAGS: EPET PGOV ECON QA
SUBJECT: QATAR ANNOUNCES RECORD BUDGET OF USD 28 BILLION
FOR 2008-09

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SUMMARY
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1. The government of Qatar approved last month the largest
budget in the country's history. Government officials touted
the 2008-09 budget as proof that the country remains
committed to its sustainable development plans. Private
sector leaders believe the 2008-09 budget creates more
favorable conditions for private sector expansion and will
help Qatar manager its economic development growth. END
SUMMARY.

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Qatar Announces 2008-09 Budget
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2. The Government of Qatar announced April 1 the country's
2008-09 fiscal year budget. Estimated revenues for the
2008-09 budget are expected to total USD 28.3 billion
(assuming that oil is priced at USD 55 per barrel),compared
to USD 19.9 in the previous fiscal year (estimated oil priced
of USD 40 per barrel),a 42.2 percent increase. About 70
percent of government revenues, roughly 85 percent of export
earnings, come from oil and gas. Estimated public
expenditures are expected to surge by 46 percent to USD 26.3
billion for 2008-09, up from USD 18 billion in 2007-08.
Based on estimated government revenues and expenditures, the
surplus for fiscal year 2008-09 will be USD 2 billion, up
from a surplus of USD 1.85 billion last year.

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Infrastructure Projects
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3. The GOQ plans to invest significant sums on infrastructure
development again this year. Qatar's 2008-09 budget
allocates USD 8.4 billion for infrastructure development,
representing 29 per cent of total public expenditures, up
from the USD 2.75 billion allocated last year. Ongoing and
new infrastructure projects include a new airport and seaport
as well as upgrades to roads, sewers, water and electricity
delivery systems, and oil and gas-related projects.

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Health and Social Services
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4. The GOQ will also continue to spend substantial sums on
health and social services. The 2008-09 budget allocates USD
2.52 billion for health and social services, corresponding to
9.6 percent of the entire budget. These funds will be used
to construct new health centers and continue the development
of existing hospitals.

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Education
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5. Huge sums will also be spent on education. The 2008-09
budget allocates USD 5.4 billion for this purpose,
representing 12.24 percent of the overall budget. A
significant part of this sum will go toward the construction
of new independent (i.e. charter) schools. (Note: Qatar has
embarked on an education system reform program under which
the GOQ provides buildings for self-managing institutions
with international curriculum standards.) Large amounts will
also go toward the Sidra Medical Center, a major hospital
project. When completed, Sidra will serve as the primary
teaching hospital for Weill-Cornell Medical College's Doha
campus. The project is scheduled for completion in 2010 at a
cost of USD 2.19 billion.

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Statements by GOQ Officials
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6. Qatar Finance Minister Yousef Hussain Kamal wrote in his
annual budget statement that this year's budget reflects the
government's intent to continue comprehensive and sustained
development, while at the same time curbing the rate of
inflation without reducing the level of public spending on
major economic and social projects. Undersecretary of
Finance Khalaf Al Mannai expected budget surpluses to
continue over the coming several years, as Qatar continues to
increase its oil production (with a goal of eventually
reaching one million barrels a day) and press ahead with
natural gas development projects, which could double Qatar's
liquefied natural gas exports over the next three years. Al

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Mannai said Qatar's revenues would continue to increase given
high global energy prices. This is the eighth year in a row
that Qatar has projected budgetary surpluses. Al-Mannai said
inflation - which reached 13.7 percent in the fourth quarter
of 2007 - is the "natural result" of a large numbers of
development projects that require large amounts of liquidity
over a relatively short period. However, he said, combating
inflation requires coordinated fiscal, monetary and related
economic policies, noting that Qatar had taken steps to
increase supplies of building materials, a shortage of which
has been the main driver of inflation.


7. The GOQ has also taken measures, according to Al-Mannai,
to cap rent increases, increase the supply of goods and
services in other sectors, and boost subsidies for basic
foodstuffs and raw materials. These policies are being
implemented based one guidance from the Finance Ministry and
the Central Bank of Qatar (CBQ). Despite its substantial
energy income, Qatar still finds it necessary to borrow
abroad to help fund its infrastructure projects. Mannai
observed that, given the massive investment requirements over
the next decade, Qatar has no alternative but to tap foreign
sources of funds. He stressed, however, that the level of
public debt is at a safe level. Qatar's debts are estimated
at USD 33.1 billion (end 2007) and USD 39.5 billion (end
2008) according to a report published last March by SABB
(formerly known as the Saudi British Bank).

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Comments by Private Sector
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8. Consensus among businessmen is that the 2008-09 budget
creates very favorable conditions for continued private
sector growth at a rapid pace. Businessman and president of
the Qatar Businessmen Association Sheikh Faisal Al Thani
predicted that the private sector would cope with the
country's economic realities and witness further expansion
and prosperity. Sheikh Khalifa Al Thani, Chairman of the
Qatar Chamber of Commerce and Industry, said the 2008-09
budget focused on the "human component" of the economy and
aimed to achieve a better standard of living for the nation,
reflecting a major transformation in the country's economic
progress.

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Strong Economic Performance
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9. Despite inflationary pressures, the outlook for the Qatari
economy remains positive, with projected 15.5 percent growth
in GDP to about USD 73.7 billion in 2008. The economy will
remain strong based on projected oil and natural gas sector
revenues. An ongoing increase in domestic demand, mainly a
result of the construction and financial services industries,
will further bolster economic growth. According to a
statement recently released by the Qatar General Secretariat
of Development and Planning (GSDP),the growth rate outside
the hydrocarbon sector in 2007 was nearly double that of the
energy sector. Nominal GDP in 2008 will rise to USD 74.1
billion, with per capita GDP at USD 78,157, according to
SABB.

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Comment
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10. Although growth in public spending over the past few
years due to sharp growth rates in hydrocarbon incomes has
been one of the main factors behind escalating inflation, the
GOQ has obviously opted not to restrict expenditures to
tackle inflation. Tempted by high oil prices and steadily
increasing natural gas revenues, Qatar is unlikely to curb
investment spending anytime soon. Inflation will remain high
and continue to be the largest economic challenge facing the
government in the months ahead.
RATNEY