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Tue 23 Aug 2011 06:25 PM

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Qatar's budget surplus shrinks sharply as spending jumps

Fiscal surplus drops to $3.7bn while expenditure increases by 24%, according to latest data

Qatar's budget surplus shrinks sharply as spending jumps

Qatar's government budget surplus shrank sharply to 2.9 percent of its economic output in fiscal 2010/11 as spending jumped, while inflation edged up slightly to at least a 19-month high in July, data showed on Tuesday.

The world's top liquefied natural gas exporter, whose $127 billion economy is seen growing at a double-digit clip in 2011, plans to spend nearly as much in the next five years on various projects ahead of hosting the 2022 soccer World Cup.

The OPEC member's fiscal surplus dropped to QR13.5 billion ($3.7 billion) from 54.1 billion, or 15.2 percent of gross domestic product, in 2009/10, the central bank's annual report posted on its website showed. It still came above a planned surplus of QR9.7 billion.

"The 2.9 percent of GDP is a bit on the low side, it is lower than most people were expecting. Most people were expecting closer to 6 to 8 percent of GDP," said Andrew Gilmour, senior economist at Samba Financial Group in London.

Expenditure jumped 24 percent to QR142.4 billion in the fiscal year that ended in March, 21 percent above the original plan.

The state's revenues fell 8 percent to QR155.9 billion despite a recovery in global crude prices as investment income plunged, although it was still 22 percent above the government forecast, the report showed.

"The sharp reduction in the cash payments of dividends in investment revenues is attributed to the setback in the profits of Qatar Petroleum for the year 2009, transferred to the state budget for the fiscal year 2010/11, compared to 2008, partly due to the decline of the average oil prices during 2009," the central bank said.

Qatar, one of the top global investors through its sovereign wealth fund, set its 2010/11 budget with expenditures of 117.9 billion riyals and revenue of 127.5 billion based on an assumed oil price of $55 per barrel.

U.S. benchmark crude prices ranged between $64 and $107 per barrel in the year to the end of March. Hydrocarbon sales make up about 62 percent of Qatar's total revenue.

"I expect a slightly lower rate of increase (of spending) in the current fiscal year," Gilmour said.

"Qatar is embarking on a number of large-scale public investment programmes and there is a push to get some of the transport projects off the ground for the World Cup 2022 which has provided an incentive to move ahead with projects that have been stalled," he said.

Analysts polled by Reuters in June expected the budget surplus of the Gulf nation, which has the world's largest per capita income of over $88,500 according to the IMF, to rise to 10.9 percent of GDP in the 2011/12 fiscal year.

The central bank report also showed that Qatar's 2010 nominal gross domestic product was revised to QR463.5 billion, up from a previously reported 449.3 billion and representing 30.2 percent growth from the previous year.

Figures for 2009 and 2008 were also revised. The central bank did not release 2010 GDP data in real terms.

Qatar's annual inflation edged up to 1.9 percent in July, its highest level in at least 19 months, but consumer prices fell 0.3 percent on the month due to a decline in housing and food costs, a separate release showed on Tuesday.

"Inflation won't be a problem in Qatar for some time to come. The continued fall in rents will be the main factor keeping inflation in Qatar low," said Paul Gamble, head of research at Jadwa Investment in Riyadh.

"It's surprising that food prices fell as higher food prices have occurred across the region and are normal during Ramadan," he said.

Housing and food costs, which together account for some 45 percent of consumer expenses in Qatar, fell by 0.8 and 0.5 percent month-on-month in July, data from Qatar's Statistics Authority showed.

Qatar returned to annual inflation last December after a protracted period of deflation. Analysts forecast average inflation of 3.2 percent in 2011 after living costs fell by 2.4 percent in 2010.