IMF Executive Board Concludes 2007 Article IV Consultation with Qatar

Public Information Notice (PIN) No. 07/141
December 14, 2007

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On November 26, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Qatar.1


Qatar's economic performance was strong in 2006, with real GDP growing by about 10 percent driven by increased production of liquefied natural gas, and strong activity in the construction and financial services sectors. Inflation reached close to 12 percent in 2006, partly reflecting supply bottlenecks. The external current account recorded a surplus of about 31 percent of GDP, as the increase in hydrocarbon exports offset a rise in imports owing to the initiation of large mega projects. The financial account showed large outflows, reflecting a buildup of external assets by the government, and the financial, corporate, and household sectors. Gross official reserves of the central bank (excluding government's external assets) increased by about US$0.8 billion in 2006, to US$5.4 billion by year's end.

Notwithstanding large increases in salaries and outlays on goods and services, the overall fiscal surplus remained at about 9 percent of GDP, as hydrocarbon revenue surged in line with oil prices. Broad money growth was about 40 percent in both 2005 and 2006, fueled by large foreign exchange inflows, public expenditure, and strong growth in credit to the private sector. While the macro-prudential indicators of the banking sector remain strong, maturity mismatches may have grown given the long-term nature of loans for infrastructure and construction projects. Banks have been putting into place risk management frameworks to implement Basle II during 2007. Equity markets remained volatile in 2006, with the Doha Securities Market index experiencing a significant correction that partially reversed the 70 percent increase experienced in 2005.

Qatar is expected to continue to perform strongly in 2007, supported by high oil and gas prices and ongoing investments in the gas sector. Inflation is projected to remain high at about 12 percent. The external current account surplus would be about 33 percent of GDP, and the gross reserves of the Qatar Central Bank (QCB) and the external assets of the government and commercial banks are expected to increase further. At about 12 percent of GDP, the fiscal surplus would be considerably higher than budgeted, as the budget is based on conservative assumptions of oil and gas prices. Money growth is expected to continue at a strong pace in 2007, reflecting large increases in the net foreign assets of the banking system and increased credit to finance private and public investments.

Qatar's medium-term outlook is very favorable, with continued strong growth expected to be driven by the hydrocarbon sector, as well as by diversification into higher value-added petrochemicals and financial and education services. The fiscal and external positions are expected to remain very comfortable. Downside risks to the outlook include lower oil prices and shortfalls in gas production, continued high inflation, and a deterioration of the security situation in the Gulf region.

Executive Board Assessment

Executive Directors commended Qatar's strong economic performance in recent years, characterized by impressive GDP growth, sizable fiscal and external current account surpluses, and a robust financial sector. Historically-high oil and gas prices have allowed Qatar to increase investment aimed at advancing economic diversification, particularly in oil and gas-related petrochemicals, education, financial services, and tourism. Looking ahead, the authorities face the challenge of sustaining growth while maintaining macroeconomic and financial stability, putting in place appropriate policies for managing hydrocarbon revenues, deepening financial markets, and developing a competitive private sector.

Directors noted that, although Qatar's medium-term prospects are very favorable, high inflation remains a concern and its reduction should be a priority. Most Directors were of the view that inflationary pressures are likely to remain high in the near term even if pressures from the shortage of housing units ease. In light of this, Directors recommended restraint in current expenditures, and the phasing of development expenditures in line with the absorptive capacity of the economy and Qatar's medium-term priorities. They noted the authorities' intention to use caps in housing rents only as a temporary measure while substantive action is taken to address the underlying inflationary pressures.

Directors noted that the Qatari riyal appears in line with fundamentals and that the large and sustained current account surpluses reflect historically-high oil prices as well as higher oil production as Qatar acts to support world oil market stability. At the same time, Directors acknowledged the special methodological difficulties in making assessments of equilibrium exchange rates for an oil-exporting economy such as Qatar facing volatile oil prices. Directors considered that the peg to the U.S. dollar has served the economy well by anchoring monetary conditions, and supporting the needs of a small, open, and oil-dependent economy. They noted the authorities' intention to maintain the peg in the period leading to the monetary union of the countries of the Gulf Cooperation Council (GCC), while keeping an open mind about the choice of the exchange rate regime under the prospective monetary union. A few Directors suggested that consideration be given to moving to a more flexible exchange rate regime to help curb inflationary pressures.

Directors noted that the banking sector's prudential indicators remain strong, and commended the QCB for enhancing prudential regulation and supervision. They stressed the need to closely monitor the risks arising from the rapid rise in real estate lending and banks' exposure to new Initial Public Offering lending. Directors supported the authorities' plans to establish a single financial market and a unified regulator. In this context, they encouraged the central bank, the Ministry of Finance, and the new regulator to come to a clear understanding on their respective responsibilities for financial monitoring and oversight, crisis resolution, and payment systems regulation and operation. In the interim, a formal mechanism should be put in place for the Qatar Financial Center (QFC) to report to the central bank on the financial situation of QFC-licensed institutions.

Directors commended the authorities on having already started the implementation of a number of the recommendations of the 2007 Financial Sector Assessment Program, including refinements to licensing criteria, rules on ownership and control of banks, and assessments of country and operational risks. They encouraged the authorities to take the additional measures recommended to develop the capital market, and to monitor closely external borrowing associated with investment projects, possibly through a debt-monitoring unit. Directors welcomed the authorities' ongoing progress in their Anti-Money Laundering/Combating Financing of Terrorism efforts, and encouraged compliance with the revised Financial Action Task Force standards.

Directors welcomed the authorities' efforts to broaden the non-oil revenue base in order to reduce Qatar's heavy dependence on the hydrocarbon sector. Lowering the corporate income tax rate for foreign companies and introducing a corporate income tax rate for national companies, with a view to unifying these rates in the future, will be a step in the right direction. Directors supported other planned changes in tax legislation, including the introduction of a Value Added Tax in the context of a GCC-wide initiative, and a reduction of exemptions under the tax holiday policy.

Directors commended the authorities for the provision of data on the foreign assets of the government as an important step to strengthen the effectiveness of Fund surveillance. They welcomed the authorities' commitment to improve the quality of economic data and encouraged them to use Fund technical assistance for further strengthening statistical capacity.

Given the strategic importance of Qatar's gas reserves and to allow a more frequent policy dialogue, more synchronized discussions on GCC monetary union issues, and a better monitoring of financial sector developments, Directors agreed to move Qatar from the present 24-month Article IV consultation cycle to a 12-month cycle.

Qatar: Selected Economic and Financial Indicators, 2003-06

  2003 2004 2005 2006

  (Annual change in percent)

Production and Prices


Real GDP

6.3 17.7 9.2 10.3

Hydrocarbon 1/

5.6 12.5 6.0 10.7

Nonhydrocarbon GDP

7.3 24.6 13.1 10.0

Nominal GDP (in millions of U.S dollars)

23,534 31,734 42,463 52,722

Consumer price index (period average)

2.3 6.8 8.8 11.8
  (In percent of GDP on fiscal year basis) 2/

Public Finance


Total revenue

33.0 44.0 39.6 41.8

Hydrocarbon revenue

21.2 29.0 26.6 26.9

Other revenue

11.8 15.0 13.0 14.9

Total expenditure

27.1 28.8 31.0 32.7

Current expenditure, of which:

22.3 22.6 20.0 24.3

Wages and salaries

6.8 6.3 4.1 6.5

Capital expenditure

4.8 6.3 11.0 8.4

Overall fiscal balance (deficit -)

5.9 15.1 8.6 9.1
  (Annual change in percent)



Broad money

4.8 20.8 42.9 39.6

Credit to private sector

27.3 30.4 63.5 44.2
  (In millions of U.S. dollars, unless otherwise stated)

External Sector


Exports of goods and services, of which:

14,728 20,658 29,416 38,803

Crude oil

7,520 9,702 14,122 17,840

LNG and related exports

4,632 6,554 8,738 13,360

Imports of goods and services

-6,699 -8,316 -13,282 -21,294

Current account

5,946 7,100 14,107 16,102

In percent of GDP

25.3 22.4 33.2 30.5

Central Bank reserves, net

2,873 3,358 4,555 5,410

In months of imports of goods and services 3/

4.1 3.0 2.6 2.4

Exchange rates (riyals/US$)

3.64 3.64 3.64 3.64

Real effective exchange rate (percent change)

-5.7 -0.1 7.1 8.3

Sources: Data provided by the authorities; and IMF staff estimates.

1/ Staff estimates; include crude oil, LNG, propane, butane, and condensate.

2/ Fiscal year beginning in April.

3/ Next 12 months.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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