## cr1788 - 2016. Fiscal and external balances have deteriorated from large surpluses to deficits due to

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### Context and main developments
- Sustained lower energy prices led fiscal and external balances to deteriorate from large surpluses to deficits.
- Authorities' 2016 policy response:
  - Cutting current expenditures.
  - Undertaking energy pricing and labor reforms.
  - Placing stronger emphasis on raising non-hydrocarbon revenues.
- Banking system:
  - Liquidity has tightened and credit to the private sector has moderated.
  - Banks remain sound and well capitalized.

### Macroeconomic performance and outlook
- Baseline growth projection:
  - Real GDP growth projected at 3.4 percent for 2017.
  - Medium-term growth expected to slow as public investment growth tapers off and hydrocarbon output continues to slow.
- Drivers:
  - Significant expansion in the non-hydrocarbon sector owing to public investment commitments.
  - Added output from the new Barzan gas project supports near-term growth.
- Expected improvements:
  - Further subsidy cuts, a moderate recovery in global commodity prices, and the introduction of a VAT are expected to improve fiscal and external balances gradually.
- Main risks:
  - Possibility of lower hydrocarbon prices compared to the baseline.
  - Weaker expenditure efficiency and/or inflationary pressures from the large public investment program.

### Fiscal developments and public finance — key figures
- Central government fiscal balance (percent of GDP):
  - 2013: 19.3
  - 2014: 12.3
  - 2015: 1.2
  - 2016: -9.0
  - 2017 (proj.): -7.7
  - 2018 (proj.): -4.8
- Total revenue (percent of GDP):
  - 2013: 47.6
  - 2014: 45.7
  - 2015: 42.7
  - 2016: 25.3
  - 2017 (proj.): 24.5
  - 2018 (proj.): 25.0
- Expenditure (percent of GDP):
  - 2013: 28.3
  - 2014: 33.4
  - 2015: 41.5
  - 2016: 34.4
  - 2017 (proj.): 32.3
  - 2018 (proj.): 29.7
- Composition of expenditure (percent of GDP):
  - Current:
    - 2013: 19.4
    - 2014: 25.0
    - 2015: 28.0
    - 2016: 20.0
    - 2017 (proj.): 17.9
    - 2018 (proj.): 16.9
  - Capital:
    - 2013: 8.9
    - 2014: 8.4
    - 2015: 13.6
    - 2016: 14.3
    - 2017 (proj.): 14.4
    - 2018 (proj.): 12.9
- Non-hydrocarbon fiscal deficit improvement:
  - From about 57 percent of non-hydrocarbon GDP in 2014 and 2015 to 38.4 percent in 2016.
- Financing and public debt:
  - In 2016, Qatar raised US$14.5 billion of external debt and issued US$ 2.6 billion of domestic bonds and Sukuk.
  - Public debt projected at about 48 percent of GDP at end 2016.
  - Sovereign wealth fund estimated investments (QIA) reported at US$335 billion at end-June 2016 (Sovereign Wealth Fund Institute estimate).
- Specific measures implemented:
  - Reductions in the number of ministries and expatriate workers in the public sector.
  - Gasoline prices adjusted upwards by 30 percent in January 2016.
  - Water and electricity rates increased since October 2015; regular fuel price adjustment mechanism implemented in May 2016.

### External sector and reserves — key figures
- Exports (billions of U.S. dollars):
  - 2013: 133.3
  - 2014: 126.7
  - 2015: 77.3
  - 2016: 58.8
  - 2017 (proj.): 69.9
  - 2018 (proj.): 73.8
- Imports (percent of GDP, negatives as listed):
  - 2013: -31.5
  - 2014: -31.1
  - 2015: -28.5
  - 2016: -29.2
  - 2017 (proj.): -34.2
  - 2018 (proj.): -35.8
- Current account balance (billions of U.S. dollars):
  - 2013: 60.5
  - 2014: 49.4
  - 2015: 13.8
  - 2016: -3.5
  - 2017 (proj.): 1.2
  - 2018 (proj.): 1.2
- Current account balance (percent GDP):
  - 2013: 30.4
  - 2014: 24.0
  - 2015: 8.4
  - 2016: -2.2
  - 2017 (proj.): 0.7
  - 2018 (proj.): 0.6
- External debt (percent GDP):
  - 2013: 81.4
  - 2014: 80.7
  - 2015: 110.6
  - 2016: 142.1
  - 2017 (proj.): 139.0
  - 2018 (proj.): 131.5
- Central bank reserves (billions of U.S. dollars), excluding QIA assets:
  - 2013: 42.2
  - 2014: 43.1
  - 2015: 37.2
  - 2016: 30.1
  - 2017 (proj.): 35.6
  - 2018 (proj.): 36.0
- Reserves in months of imports:
  - 2013: 7.8
  - 2014: 8.6
  - 2015: 7.1
  - 2016: 5.2
  - 2017 (proj.): 5.7
  - 2018 (proj.): 5.7
- Exchange rate:
  - Riyals/US$: 3.6 (2013–2018 entries)
- Real effective exchange rate (percentage change):
  - 2013: 2.5
  - 2014: 2.2
  - 2015: 11.2
  - 2016: 2.7

### Inflation, growth composition, and labor — key figures
- Real GDP (2013 prices) annual change:
  - 2013: 4.4 percent
  - 2014: 4.0 percent
  - 2015: 3.6 percent
  - 2016: 2.7 percent
  - 2017 (proj.): 3.4 percent
  - 2018 (proj.): 2.8 percent
- Hydrocarbon real GDP annual change:
  - 2013: 0.1
  - 2014: -0.6
  - 2015: -0.5
  - 2016: -0.9
  - 2017 (proj.): 1.1
  - 2018 (proj.): 0.2
- Nonhydrocarbon real GDP annual change:
  - 2013: 10.4
  - 2014: 9.8
  - 2015: 8.2
  - 2016: 6.5
  - 2017 (proj.): 5.7
  - 2018 (proj.): 5.3
- CPI inflation (average):
  - 2013: 3.1
  - 2014: 3.4
  - 2015: 1.8
  - 2016: 2.7
  - 2017 (proj.): 2.6
  - 2018 (proj.): 5.7
- Notable inflation drivers:
  - Inflation uptick in 2016 primarily due to higher energy costs associated with subsidy cuts.

### Financial sector developments — key figures and dynamics
- Broad money (annual change in percent):
  - 2013: 19.6
  - 2014: 10.6
  - 2015: 3.4
  - 2016: -2.0
  - 2017 (proj.): 5.0
  - 2018 (proj.): 6.5
- Credit to private sector (annual change in percent):
  - 2013: 13.5
  - 2014: 20.3
  - 2015: 19.7
  - 2016: 6.5
  - 2017 (proj.): 10.8
  - 2018 (proj.): 12.3
- Liquidity and funding:
  - Deposits amount to about 58 percent of total liabilities of the banking sector.
  - Resident (particularly government) deposits declined in 2016; banks sought non-resident deposits and wholesale funding.
  - Bank credit to the public sector increased in 2016 while private sector credit growth slowed from 19.7 percent in 2015 to 6.5 percent in 2016.
- Supervisory and regulatory progress:
  - Progress with implementation of Basel III and macro-prudential regulations.
  - Recommendations: develop a more active liquidity forecasting framework and enhance the AML/CFT framework.

### Banking sector condition and key statistics (section 10 & 23)
- Banking assets are about 160 percent of GDP.
- Sector concentration:
  - Top three banks constitute about two third of total banking assets.
- Capital and asset quality:
  - Tier 1 capital: 15 percent of risk-weighted assets (regulatory minimum 12.5 percent).
  - NPL ratios: 1.2 percent of total loans.
  - Coverage ratio of NPL provisioning: 109.2 percent (September 2016).
  - Return on assets: 1.3 percent (compared to 1.6 percent in September 2015).
  - Loan-to-deposit ratio: 114.9 percent.
  - Foreign liabilities of commercial banks: about 21.6 percent of total liabilities (December 2016).
- Financial risks and vulnerabilities:
  - Potential risks from sustained low oil prices and increasing interest rates: continued liquidity pressures, credit risks in real estate, concentration risks, cross-border lending, foreign currency exposure.
  - Liquidity pressures could intensify if the government continues to withdraw banking deposits to finance the deficit.
  - Banks increased reliance on nonresident deposits and wholesale funding in 2016; these sources are costlier and more volatile.

### Policy recommendations — fiscal, monetary, and structural
- Executive Board and staff guidance:
  - Gradual fiscal consolidation over the medium term to ensure intergenerational equity of exhaustible hydrocarbon wealth.
  - Support for revenue and expenditure measures: subsidy reforms, containment of public-service benefits, lower spending on goods and services, and introduction of a VAT and excise taxes.
  - Explore broadening corporate income tax base over the medium term.
  - Prepare and implement a medium-term fiscal strategy; improve monitoring of public expenditures and transparency.
- Monetary and financial policy guidance:
  - Fixed exchange rate regime remains appropriate.
  - Strengthen the monetary policy framework and deepen domestic financial markets, particularly the domestic debt market.
  - Monitor risks from sustained low hydrocarbon prices or rising interest rates.
- Financial stability recommendations:
  - Develop more active liquidity forecasting.
  - Carefully manage liquidity tool implementation to avoid pro-cyclical effects.
  - Consider suspending or postponing the new loan-to-deposit ratio requirement if liquidity conditions tighten for cyclical reasons.
  - Further extend and strengthen early warning indicators.
- Structural and diversification guidance:
  - Continue efforts to enhance economic diversification and promote private sector development.
  - Improve business environment, labor market and education reforms to raise productivity and support inclusive growth.
  - Deepen domestic financial markets: develop an active debt market, extend maturities to cover the 9-months-3-year gap, and lengthen bonds beyond 10 years.

### Fiscal strategy, intergenerational equity, and revenue measures (policy discussion)
- Permanent Income Hypothesis (PIH) analysis:
  - Gap between projected non-hydrocarbon primary fiscal balance and PIH-based benchmark: about 6 percentage points of non-hydrocarbon GDP in 2016.
  - Optimal non-hydrocarbon primary fiscal balance estimated at about 26 percent of non-hydrocarbon GDP in 2021.
- Authorities’ measures and projections:
  - Baseline projects a central government deficit of 3.1 percent of GDP in 2021, implying an adjustment of about 15 percentage points in the non-hydrocarbon primary deficit ratio to non-hydrocarbon GDP.
  - VAT at a rate of 5 percent could generate additional revenue of about 1.5 percentage points of non-hydrocarbon GDP per year.
  - Excises on tobacco and sugary drinks planned from 2017 estimated to yield about 0.2 percent of non-hydrocarbon GDP.
  - Controlling public service benefits and spending on goods and services expected to reduce total public spending by 13 percentage points of non-hydrocarbon GDP by 2021.
- Additional revenue and subsidy reform potentials:
  - If domestic fuel prices set at the level in the UAE or the U.S., additional fiscal revenue could range from 0.4 to 1.1 percent of non-hydrocarbon GDP.
  - Removal of subsidies on electricity and gas would yield an estimated about 4 percent of non-hydrocarbon GDP.
- Financing guidance:
  - Financing persistent fiscal deficit should be mindful of liquidity pressures and support private sector credit growth without jeopardizing external debt sustainability.
  - Financing mainly through external borrowing and foreign asset drawdown is deemed appropriate; authorities committed not to use accumulated SWF savings to finance the deficit.
  - Over time, borrowing and investment decisions should be guided by a comprehensive asset-liability management framework.

### Public Sector and External Debt Sustainability Analysis — selected DSA figures
- Nominal gross government debt (percent of GDP):
  - 2014: 26.3
  - 2015: 32.3
  - 2016: 34.9
  - 2017: 47.6
  - 2018: 50.2
  - 2019: 50.8
  - 2020: 51.9
  - 2021: 53.8
- Change in gross government debt (percent of GDP):
  - 2014: 0.5
  - 2015: -0.8
  - 2016: 2.7
  - 2017: 12.7
  - 2018: 2.6
  - 2019: 0.6
  - 2020: 1.1
  - 2021: 1.9
  - cumulative: 19.6
- Primary deficit (percent of GDP):
  - 2014: -12.5
  - 2015: -16.5
  - 2016: -7.1
  - 2017: 8.3
  - 2018: 6.7
  - 2019: 3.6
  - 2020: 2.1
  - 2021: 1.9
  - cumulative: 24.3
- Effective interest rate (percent series shown): 5.7, 3.8, 3.8, 2.0, 2.4, 2.7, 2.9, 3.0, 3.1
- Key macro projections (selected):
  - Real GDP growth (in percent): 13.5 (2014), 4.0 (2015), 3.6 (2016), 2.7 (2017), 3.4 (2018), 2.8 (2019), 2.3 (2020), 2.0 (2021)
  - Inflation (GDP deflator, percent): 9.3 (2014), -0.2 (2015), -22.9 (2016), -7.3 (2017), 7.1 (2018)
- Alternative stress scenarios (selected):
  - Oil Price Shock (oil price lower by $10 in 2016-21): Primary Balance: -8.3 (2016), -10.2 (2017), -7.1 (2018), -5.6 (2019), -5.3 (2020), -4.9 (2021)
  - Growth-Spending Scenario: Real GDP growth: 2.7 (2016), 2.4 (2017), 1.8 (2018), 1.3 (2019), 1.0 (2020), 0.6 (2021); Primary Balance: -8.3 (2016), -8.7 (2017), -5.6 (2018), -4.1 (2019), -3.9 (2020), -3.6 (2021)
  - Combined Scenario: Primary Balance: -8.3 (2016), -12.2 (2017), -9.1 (2018), -7.6 (2019), -7.3 (2020), -6.9 (2021)

### External debt sustainability — selected metrics (Table 1 highlights)
- External debt (percent of GDP):
  - 2013: 81.4
  - 2014: 80.7
  - 2015: 110.6
  - 2016: 142.1
  - 2017: 139.0
  - 2018: 131.5
  - 2019: 129.9
  - 2020: 129.4
  - 2021: 129.6
- External debt-to-exports ratio (percent):
  - 2011: 107.3
  - 2015: 197.4
  - 2016: 293.4
  - 2017: 270.3
  - 2018: 265.9
- Gross external financing need (billions of US dollars):
  - 2015: 53.2
  - 2016: 93.5
  - 2017: 118.0
  - 2018: 120.0
  - 2019: 119.9
  - 2020: 117.8
  - 2021: 116.5
- Gross external financing need (percent of GDP):
  - 2015: 32.3
  - 2016: 59.7
  - 2017: 68.0
  - 2018: 62.0
  - 2019: 58.6
  - 2020: 54.8
  - 2021: 51.8

### External Stability Assessment — key findings
- Current account deteriorated to a deficit estimated at 2.2 percent of GDP in 2016 (from a surplus of 8.4 percent in 2015).
- Central bank foreign exchange reserves declined from $37 billion in 2015 to $30 billion in 2016.
- QCB reserves represent around 24 percent of broad money and cover 5 months of imports of goods and services.
- QIA assets estimated at about $335 billion in 2016 provide a large additional buffer.
- Permanent income model:
  - Estimated current account gap about 4.6 percentage points of GDP in 2016, narrowing to around 2.5 percentage points over the medium term in the baseline.
- EBA-Oil model:
  - Current account norm consistent with optimal fiscal policy: 2.3 percent of GDP surplus in 2016.
  - Actual current account: deficit of 2.2 percent of GDP in 2016.
- Policy implication: fiscal policy and sufficient saving of hydrocarbon revenues are central to closing the current account gap.

### Structural, statistical, and labor market reforms
- Labor law reform:
  - New labor law abolished the “Kafala” system; implementation commenced December 2016.
  - Contracts extended to 5 years; grievance committees established; cooling-off period abolished.
- Structural priorities:
  - Enhance economic diversification, private sector development, PPP frameworks, logistics, contract enforcement, education quality, insolvency mechanisms, and SME access to financing.
- Statistical improvements:
  - Authorities started publishing quarterly GDP by expenditure and finalized Foreign Investment Survey.
  - Plans to enhance IIP/NIIP data via a quarterly survey covering non-financial sector foreign assets and liabilities.

### Key vulnerabilities and risk management
- Main vulnerabilities:
  - Hydrocarbon dependence: hydrocarbon revenues historically represented almost 90 percent of total fiscal revenue; on average around 80 percent of exports of goods and services.
  - Large public investment program: US$200 billion, equivalent to 128 percent of 2016 GDP, increases exposure to expenditure efficiency and inflationary pressures.
- Risk mitigation:
  - Use of financial buffers and sovereign wealth to weather shocks.
  - Financing 2016 deficit through domestic and foreign borrowing without drawing down sovereign wealth fund.
  - Adequate reserves in months of imports despite deterioration in levels.

*IMF staff report: Qatar — Staff Report for the 2016 Article IV Consultation (March 3, 2017).*

### 2016. Fiscal and external balances have deteriorated from large surpluses to deficits due to

### cr1788 - 2016. Fiscal and external balances have deteriorated from large surpluses to deficits due to

### Context and main developments
- Sustained lower energy prices led fiscal and external balances to deteriorate from large surpluses to deficits.
- Authorities' policy response in 2016:
  - Cutting current expenditures.
  - Undertaking energy pricing and labor reforms.
  - Placing stronger emphasis on raising non-hydrocarbon revenues.
- Banking system:
  - Liquidity has tightened and credit to the private sector has moderated.
  - Banks remain sound and well capitalized.

### Macroeconomic performance and outlook
- Baseline growth projection:
  - Real GDP growth projected at 3.4 percent for 2017.
  - Medium-term growth expected to slow as public investment growth tapers off and hydrocarbon output continues to slow.
- Drivers:
  - Significant expansion in the non-hydrocarbon sector owing to public investment commitments.
  - Added output from the new Barzan gas project supports near-term growth.
- Expected improvements:
  - Further subsidy cuts, a moderate recovery in global commodity prices, and the introduction of a VAT are expected to improve fiscal and external balances gradually over the near to medium term.
- Main risks:
  - Possibility of lower hydrocarbon prices compared to the baseline.
  - Weaker expenditure efficiency and/or inflationary pressures from the large public investment program.

### Fiscal developments and public finance
- Central government fiscal balance (percent of GDP):
  - 2013: 19.3
  - 2014: 12.3
  - 2015: 1.2
  - 2016: -9.0
  - 2017 (proj.): -7.7
  - 2018 (proj.): -4.8
- Total revenue (percent of GDP):
  - 2013: 47.6
  - 2014: 45.7
  - 2015: 42.7
  - 2016: 25.3
  - 2017 (proj.): 24.5
  - 2018 (proj.): 25.0
- Expenditure (percent of GDP):
  - 2013: 28.3
  - 2014: 33.4
  - 2015: 41.5
  - 2016: 34.4
  - 2017 (proj.): 32.3
  - 2018 (proj.): 29.7
- Composition of expenditure (percent of GDP):
  - Current:
    - 2013: 19.4
    - 2014: 25.0
    - 2015: 28.0
    - 2016: 20.0
    - 2017 (proj.): 17.9
    - 2018 (proj.): 16.9
  - Capital:
    - 2013: 8.9
    - 2014: 8.4
    - 2015: 13.6
    - 2016: 14.3
    - 2017 (proj.): 14.4
    - 2018 (proj.): 12.9
- Non-hydrocarbon fiscal deficit improvement:
  - From about 57 percent of non-hydrocarbon GDP in 2014 and 2015 to 38.4 percent in 2016.
- Financing and public debt:
  - In 2016, Qatar raised US$14.5 billion of external debt and issued US$ 2.6 billion of domestic bonds and Sukuk.
  - Public debt projected at about 48 percent of GDP at end 2016.
  - Sovereign wealth fund estimated investments (QIA) reported at US$335 billion at end-June 2016 (Sovereign Wealth Fund Institute estimate).
- Specific measures implemented:
  - Reductions in the number of ministries and expatriate workers in the public sector.
  - Increases in tariffs of some utilities and domestic fuel prices (gasoline prices adjusted upwards by 30 percent in January 2016).
  - Water and electricity rates increased since October 2015.
  - Implementation of a regular price adjustment mechanism for domestic fuel in May 2016.

### External sector and reserves
- Current account balance (billions of U.S. dollars):
  - Exports:
    - 2013: 133.3
    - 2014: 126.7
    - 2015: 77.3
    - 2016: 58.8
    - 2017 (proj.): 69.9
    - 2018 (proj.): 73.8
  - Imports (% of GDP listed as negatives in table):
    - 2013: -31.5
    - 2014: -31.1
    - 2015: -28.5
    - 2016: -29.2
    - 2017 (proj.): -34.2
    - 2018 (proj.): -35.8
  - Current account balance (billions of U.S. dollars):
    - 2013: 60.5
    - 2014: 49.4
    - 2015: 13.8
    - 2016: -3.5
    - 2017 (proj.): 1.2
    - 2018 (proj.): 1.2
  - Current account balance (percent GDP):
    - 2013: 30.4
    - 2014: 24.0
    - 2015: 8.4
    - 2016: -2.2
    - 2017 (proj.): 0.7
    - 2018 (proj.): 0.6
- External debt (percent GDP):
  - 2013: 81.4
  - 2014: 80.7
  - 2015: 110.6
  - 2016: 142.1
  - 2017 (proj.): 139.0
  - 2018 (proj.): 131.5
- Central bank reserves (billions of U.S. dollars), excluding QIA assets:
  - 2013: 42.2
  - 2014: 43.1
  - 2015: 37.2
  - 2016: 30.1
  - 2017 (proj.): 35.6
  - 2018 (proj.): 36.0
- Reserves in months of imports:
  - 2013: 7.8
  - 2014: 8.6
  - 2015: 7.1
  - 2016: 5.2
  - 2017 (proj.): 5.7
  - 2018 (proj.): 5.7
- Exchange rate:
  - Riyals/US$: 3.6 (2013–2018 entries show 3.6 for each year listed)
- Real effective exchange rate (percentage change):
  - 2013: 2.5
  - 2014: 2.2
  - 2015: 11.2
  - 2016: 2.7

### Inflation, growth composition, and labor
- Real GDP (2013 prices) annual change:
  - 2013: 4.4 percent
  - 2014: 4.0 percent
  - 2015: 3.6 percent
  - 2016: 2.7 percent
  - 2017 (proj.): 3.4 percent
  - 2018 (proj.): 2.8 percent
- Hydrocarbon real GDP annual change:
  - 2013: 0.1
  - 2014: -0.6
  - 2015: -0.5
  - 2016: -0.9
  - 2017 (proj.): 1.1
  - 2018 (proj.): 0.2
- Nonhydrocarbon real GDP annual change:
  - 2013: 10.4
  - 2014: 9.8
  - 2015: 8.2
  - 2016: 6.5
  - 2017 (proj.): 5.7
  - 2018 (proj.): 5.3
- CPI inflation (average):
  - 2013: 3.1
  - 2014: 3.4
  - 2015: 1.8
  - 2016: 2.7
  - 2017 (proj.): 2.6
  - 2018 (proj.): 5.7
- Notable inflation drivers:
  - Inflation uptick in 2016 primarily due to higher energy costs associated with subsidy cuts.

### Financial sector developments
- Broad money (annual change in percent):
  - 2013: 19.6
  - 2014: 10.6
  - 2015: 3.4
  - 2016: -2.0
  - 2017 (proj.): 5.0
  - 2018 (proj.): 6.5
- Credit to private sector (annual change in percent):
  - 2013: 13.5
  - 2014: 20.3
  - 2015: 19.7
  - 2016: 6.5
  - 2017 (proj.): 10.8
  - 2018 (proj.): 12.3
- Liquidity and funding:
  - Liquidity pressures emerged from lower hydrocarbon fiscal and external revenues.
  - Deposits amount to about 58 percent of total liabilities of the banking sector.
  - Resident (particularly government) deposits declined in 2016; banks sought non-resident deposits and wholesale funding.
  - Bank credit to the public sector increased in 2016 while private sector credit growth slowed from 19.7 percent in 2015 to 6.5 percent in 2016.
- Supervisory and regulatory progress:
  - Progress with implementation of Basel III and macro-prudential regulations.
  - Elaboration of a new Strategic Plan for Financial Regulation and development of an early warning system.
  - Recommendations included developing a more active liquidity forecasting framework and enhancing the framework for anti-money laundering and combating the financing of terrorism.

### Executive Board and policy recommendations
- Executive Directors' assessment highlights:
  - Qatar is well positioned to mitigate shocks owing to substantial financial buffers.
  - Authorities were commended for responsiveness to lower energy prices.
  - Continued sound policies are encouraged to strengthen the fiscal position, maintain financial stability, and promote diversified and sustainable growth.
- Fiscal policy guidance:
  - Gradual fiscal consolidation over the medium term is key to ensuring intergenerational equity of exhaustible hydrocarbon wealth.
  - Support for ongoing and envisaged revenue and expenditure measures: subsidy reforms, containment of public-service benefits, lower spending on goods and services, and introduction of a VAT and excise taxes.
  - Explore additional revenue measures including broadening corporate income tax base over the medium term.
  - Prepare and implement a medium-term fiscal strategy; improve monitoring of public expenditures and transparency to better assess fiscal position.
- Monetary and financial policy guidance:
  - Qatar’s fixed exchange rate regime remains appropriate.
  - Further strengthening of the monetary policy framework and deepening domestic financial markets, particularly the domestic debt market, advised.
  - Monitor risks from sustained low hydrocarbon prices or rising interest rates.
- Structural and diversification policy guidance:
  - Continue efforts to enhance economic diversification and promote private sector development.
  - Additional measures to improve the business environment; labor market and education reforms to raise productivity, increase potential output, and support inclusive growth.
  - Improvements in economic statistics welcomed; further efforts needed to address remaining gaps.

### Key vulnerabilities and risk management
- Main vulnerabilities:
  - Dependence of revenues and exports on hydrocarbons (hydrocarbon revenues historically represented almost 90 percent of total fiscal revenue; on average around 80 percent of exports of goods and services).
  - Large public investment program (US$200 billion, equivalent to 128 percent of 2016 GDP) increases exposure to expenditure efficiency and inflationary pressures.
- Risk mitigation:
  - Use of financial buffers and sovereign wealth to weather shocks.
  - Financing 2016 deficit through domestic and foreign borrowing without drawing down sovereign wealth fund.
  - Adequate reserves in months of imports despite deterioration in levels.

*IMF staff report: Qatar — Staff Report for the 2016 Article IV Consultation (March 3, 2017).*

### 10.      The banking sector remains sound and well capitalized. The sector is large—banking

### 10.      The banking sector remains sound and well capitalized.

### Banking sector—condition and key statistics
- Banking assets are about 160 percent of GDP.
- The sector is relatively concentrated; the top three banks constitute about two third of the total banking assets.
- Tier 1 capital stands at 15 percent of risk-weighted assets, well above the regulatory minimum of 12.5 percent.
- NPL ratios are at 1.2 percent of total loans.
- Coverage ratio of NPL provisioning reached 109.2 percent in September 2016.
- Return on assets has decreased to 1.3 percent, compared to 1.6 percent in September 2015.
- Loan-to-deposit ratio reached 114.9 percent.
- Foreign liabilities of commercial banks amounted to about 21.6 percent of total liabilities (December 2016).

### Macroeconomic outlook and projections (baseline)
- Growth:
  - Real GDP growth is projected at 3.4 percent for 2017.
  - Growth is projected to average about 2.2 percent during 2018–21.
- Inflation:
  - During 2017–18, further subsidy cuts, a moderate recovery in global commodity prices, and the introduction of a VAT will continue to drive the overall price level.
  - In the medium term subdued growth prospects are envisaged to keep inflation low.
- Fiscal and external balances:
  - Central government deficit is expected to decline slightly to about 7.7 percent of GDP in 2017.
  - The general government balance is projected to show a deficit of 3.1 percent in 2017.
  - The non-hydrocarbon primary deficit is projected at 35 percent of non-hydrocarbon GDP in 2017.
  - The current account deficit is projected at about 2.2 percent of GDP in 2016; the first deficit since 1998.
  - Over the medium term, the current account position is expected to improve in line with improvement in hydrocarbon export receipts.

### Risks—external and domestic
- External risks:
  - The main external risk is the possibility of persistently lower energy prices; if oil prices fall back to around the 2016 average and stay at that level, fiscal and current account balances would deteriorate significantly compared with staff baseline, though net government debt and official reserves would remain comfortable.
  - External borrowing costs could increase with volatile global financial market developments; significant dollar appreciation and higher U.S. interest rates would entail tighter monetary conditions given the fixed exchange rate regime.
- Domestic risks:
  - The ongoing public investment program could increase near-term inflation and weaken expenditure efficiency as investment scales up.
  - Loan-to-deposit ratio rise implies increased funding risk.
  - Increased cross-border activities of Qatar banks may raise downside risks for asset quality; these activities are closely monitored by the QCB.
- Overall assessment:
  - Financial risks in the banking sector are moderate as banks’ balance sheets remain strong.
  - Qatar’s large buffers would help weather downside scenarios (see Risk Assessment Matrix, Annex II).

### Policy discussions — fiscal strategy and intergenerational equity
- Long-term fiscal anchor:
  - Gradual fiscal consolidation over the medium term is key to ensuring adequate saving of hydrocarbon wealth for future generations.
  - Staff analysis based on the Permanent Income Hypothesis model (PIH) suggests the gap between the projected non-hydrocarbon primary fiscal balance and the PIH-based benchmark was about 6 percentage points of non-hydrocarbon GDP in 2016.
  - The optimal non-hydrocarbon primary fiscal balance is estimated at about 26 percent of non-hydrocarbon GDP in 2021.
- Authorities’ baseline and measures:
  - Baseline projects a central government deficit of 3.1 percent of GDP in 2021, implying an adjustment of about 15 percentage points in the non-hydrocarbon primary deficit ratio to non-hydrocarbon GDP.
  - Qatar has started preparations for VAT introduction; VAT at a rate of 5 percent could generate additional revenue of about 1.5 percentage points of non-hydrocarbon GDP per year.
  - Excises on tobacco and sugary drinks are planned from 2017, estimated to yield about 0.2 percent of non-hydrocarbon GDP.
  - Controlling public service benefits and spending on goods and services, while preserving key public investment projects, is expected to reduce total public spending by 13 percentage points of non-hydrocarbon GDP by 2021.
- Additional revenue and subsidy reform:
  - Room exists to increase and broaden the base of existing taxes, especially corporate income tax.
  - If domestic fuel prices were set at the level in the UAE or the U.S., additional fiscal revenue could range from 0.4 to 1.1 percent of non-hydrocarbon GDP.
  - Removal of subsidies on electricity and gas would yield an estimated about 4 percent of non-hydrocarbon GDP.
- Fiscal financing and debt management:
  - Financing the persistent fiscal deficit should be mindful of liquidity pressures and support private sector credit growth without jeopardizing external debt sustainability.
  - Financing mainly through external borrowing and foreign asset drawdown is deemed appropriate under current circumstances; authorities committed not to use accumulated savings in the SWF to finance the fiscal deficit.
  - Over time, borrowing and investment decisions should be guided by a comprehensive asset-liability management framework considering macro-financial implications.
- Impact on growth:
  - The fiscal consolidation in the baseline is estimated to dampen non-hydrocarbon GDP growth by about 0.3-0.5 percentage point per annum over 2017-2021.

### Institutional and monetary framework
- Budget and public investment management:
  - Progress in strengthening the medium-term budget framework: establishment of a Macro-Fiscal Unit within the Ministry of Finance, review of capital expenditures, medium-term envelopes, public investment management unit progress, new tender law and public finance law.
  - Staff recommended further efforts to enhance monitoring of public expenditures and transparency of fiscal accounts.
- Exchange rate and monetary policy:
  - The fixed exchange rate peg to the U.S. dollar remains appropriate and continues to serve as a credible anchor.
  - Further strengthening the monetary framework, including enhancing liquidity forecasting, would help smooth sharp liquidity fluctuations in the context of tighter liquidity.
  - The QCB has capacity and instruments to inject liquidity via the discount window and repo operations; the government can provide additional liquidity by managing portfolios of the QIA and public sector enterprises.
- Financial buffers and debt metrics:
  - Qatar’s estimated accumulated savings represent around 450 percent of the stock of government debt in 2016, and cover more than 4 times the accumulated projected fiscal deficit over the next five years.
  - Borrowing conditions are favorable; the yield on 10-year government bonds is presently about 3.5 percent.

### Deepening financial markets
- Rationale and needs:
  - Deepening domestic financial markets will promote saving and offer borrowing and investment opportunities, supporting infrastructure and development financing needs.
  - Continued development of an active debt market and establishment of a private debt market need support from a risk-free yield curve.
  - Consider progressive extension of maturities to cover the 9-months-3-year gap and lengthen bonds beyond 10-years to aid pricing of other financial instruments.
- Authorities’ stance:
  - The authorities concurred that further efforts are needed to strengthen market infrastructure and develop a domestic corporate debt market.

*Source: IMF staff report (cr1788).*

### 23.      The banking sector is sound but could face risks from sustained low oil prices and

### 23.      The banking sector is sound but could face risks from sustained low oil prices and

### Banking sector: soundness and risks
- Banks remain sound and well capitalized but could face risks from sustained low oil prices and increasing interest rates.
- Potential financial stability risks:
  - continued liquidity pressures;
  - credit risks related to real estate activities;
  - concentration risks;
  - cross-border lending;
  - foreign currency exposure.
- Liquidity dynamics and funding:
  - Liquidity pressures could intensify if the government continues to withdraw its banking deposits to finance the deficit.
  - Given lower government deposits, banks reacted by attracting nonresident deposits and increasing wholesale funding to sustain robust private sector credit growth.
  - These sources of wholesale funding are costlier and more volatile and could further affect bank profitability.
  - Staff observed that the ratio of liquid assets to total assets has continued to decrease (See Table 5).
  - Staff recommended careful management of liquidity pressures, including more active liquidity forecasting.
  - The authorities viewed banking system liquidity as adequate and noted that the QCB has been actively managing liquidity by adjusting their T-Bill auctions to the evolving liquidity conditions.
- Policy recommendations for financial stability:
  - Develop more active liquidity forecasting.
  - Carefully manage implementation of liquidity tools to avoid creating pro-cyclical effects.
  - Consider suspending or postponing the implementation of the new loan-to-deposit ratio requirement if liquidity conditions become tighter for cyclical reasons.
  - Further extend and strengthen early warning indicators.

### Regulatory reform and market development
- Strategic Plan and Basel III:
  - Most of the Strategic Plan for Financial Regulation 2013-16 has been implemented, including Basel III and macro-prudential regulation.
  - Authorities are elaborating a new 2017-2022 Strategic Plan and are in the process of identifying new priorities.
  - Progress includes liquidity ratios, counter-cyclical buffers, and buffers for domestic systemically important banks.
- Loan-to-deposit requirement:
  - The new loan-to-deposit requirement is to be set at 100 percent by end-2017.
  - Some banks are proposing to change the loan-to-deposit formula so that it includes long-term wholesale funds in the denominator.
- AML/CFT and Early Warning System:
  - An Early Warning System is being developed.
  - Efforts to enhance the AML/CFT framework are underway with TA from the Fund.
- Domestic debt market and government debt issuance:
  - Staff recommended a well-defined and transparent government debt issuance strategy to encourage secondary market trading.
  - The QCB is de facto responsible for domestic debt management and, in consultation with the MoF, designs the issuance plan and executes transactions.
  - A transparent debt management strategy and disclosure of the division of responsibilities between the QCB and the Ministry of Finance were recommended to enhance governance, transparency, and accountability.

### Local currency government securities: issuance and market structure
- T-bills and T-bonds:
  - Auctions of zero-coupon T-bills started in May 2011 (91 days) and August 2011 (182 and 273 days).
  - T-bills auctions are generally held on the first working Tuesday of each month.
  - Total current outstanding T-bill stock (as at end-December 2016) was QR 5.6 billion (around US$1.5 billion).
  - Initially, QR 2 billion was on offer for the three-month maturity and QR1 billion for the six- and nine-month maturity at each auction; amounts have been adjusted based on evolving liquidity conditions.
  - All banks in Qatar are eligible to bid; auctions are organized as multiple price auctions with no limit on the size of a bid by a single bank.
  - Results are posted on the QCB’s website.
- Secondary market and trading:
  - Both T-bills and T-bonds (except Sukuk) are listed at Qatar Exchange (QE) for secondary market trading, but the secondary market is not very active.
  - Since December 2011, all T-bills must be listed at QE and secondary trading must take place on QE; over-the-counter trading is not allowed.
  - The three-six-nine-month T-bills issued to Islamic banks are not tradable but can be used as collateral with the QCB for repo transactions.
  - Foreign investors are eligible to buy T-bills in the secondary market via registered brokerage firms at the QE, but trading by foreign investors appears negligible.
  - QE has established trading platforms for both T-bills and government bonds. The secondary market is regulated and supervised by the Qatar Financial Market Authority.
- Market development metrics (as presented):
  - Outstanding from pre-2013 issuances 24,276
  - Maturity of bonds issued since 2013 8,000
  - Outstanding as at end December 2016 103,476

### Diversifying growth and improving the business environment
- Competitiveness and diversification:
  - Qatar ranks 18th (out of 140) in the World Economic Forum’s Global Competitiveness Index (2016-17).
  - Staff emphasized the importance of economic diversification and private sector development in the context of low oil prices.
  - Authorities reported progress in new sectors: air transportation, media and financial services, and investment in foreign assets.
  - Measures include increased access of SMEs to financing, developing clusters (particularly a sports business cluster), and a new public private partnership framework.
- Policy design principles for PPPs:
  - Clear risk-sharing arrangement principles.
  - Transparent and competitive tender mechanisms.
  - Sound fiscal risk control policies.
- Business environment reforms needed:
  - Enhanced contract enforcement by reducing time and cost to settle commercial disputes.
  - Improved education quality with focus on entrepreneurship and innovation.
  - Strengthened insolvency mechanisms.
- Additional structural priorities:
  - Improve logistics and transportation to reduce production costs and raise productivity.
  - Simplify business registration (single-window centralized registration is newly introduced).
  - Strengthen monitoring and evaluation mechanisms in the second national development strategy focusing on education quality, fiscal management, and institutional framework for fiscal policy.

### Labor market, education, and inclusiveness
- Labor law and Kafala reforms:
  - New labor law with reforms to the “Kafala” employment sponsorship system was introduced in October 2015 and came into effect in December 2016.
- Workforce retention and residency:
  - Addressing uncertainty about permanent residency would help retain high skilled workers to support investment into higher productivity sectors.
- Broader labor and civil service reforms:
  - Focus on improving incentives for nationals to work in the private sector, particularly amid fiscal consolidation.
  - Labor productivity enhancements through improvements in education and training.

### Macroeconomic statistics and data improvements
- Recent improvements:
  - Authorities started publishing quarterly GDP by expenditure.
  - Finalized compilation of the Foreign Investment Survey.
- International investment position (IIP) and NIIP:
  - IIP source data available for the government and financial sector; non-financial sector foreign assets and liabilities are collected via an annual survey.
  - Authorities plan to enhance this survey and conduct it quarterly to enable quarterly NIIP compilation.
  - The quarterly survey should cover foreign assets and liabilities of the non-financial sector with a breakdown by maturity and instrument.
- Other statistical enhancements:
  - Progress in compiling fiscal data according to the GFSM 2001 and preparing for subscription to the SDDS.
  - Improvements in real estate sector statistics.
  - Additional efforts needed to develop data on household, corporate and government balance sheets.
  - Collaboration with GCC Stat to enhance national accounts and price statistics.

### Staff appraisal: outlook, fiscal policy, and exchange rate
- Growth and inflation:
  - Real GDP growth is expected to regain strength this year, albeit at a moderate rate going forward.
  - Growth in the non-hydrocarbon sector is supported by a vast public investment program and output from a new gas field.
  - In the medium term, growth is envisaged to slow due to lower public investment and continued drag in hydrocarbon output.
  - Inflation is expected to remain low.
- Fiscal and external positions:
  - Fiscal and external deficits would remain in the near to medium term on account of low oil and gas prices.
  - The budget will still be in deficit in 2017 as planned expenditure and revenue measures are not sufficient to compensate for lower hydrocarbon revenues.
  - Over the medium term, the current account position is projected to improve in line with the moderate improvement in hydrocarbon export prices.
- Fiscal reform priorities:
  - Implement fiscal measures that focus on cutting recurrent expenditure and mobilizing non-hydrocarbon revenues to achieve intergenerational equity.
  - Enhance the efficiency of public investment and underpin fiscal consolidation with a medium-term fiscal framework and clear medium-term objective.
  - Improve monitoring of public expenditures and transparency of fiscal accounts, including government financial transactions.
- Exchange rate regime:
  - The fixed exchange rate regime (peg to the U.S. dollar) remains appropriate for Qatar.
  - The peg has anchored the price of tradables and reduced transaction costs, while providing stability to income flows and financial wealth.
  - Further strengthening the monetary framework will be helpful as the economy diversifies.
  - External position is assessed to be weaker than the level consistent with sufficient saving of Qatar’s exhaustible resource revenue; gradual fiscal adjustment would help narrow the estimated current account gap in the medium term.
- Consultation timing:
  - It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

*IMF staff report: "QATAR" (Chapter 23).*

### Box 2. The Main Elements of the New Labor Law

### Box 2. The Main Elements of the New Labor Law

### Background and rationale
- Qatar’s employment of migrant workers was based on a framework called the “Kafala” (sponsorship) system, under which residency visas of employees were linked to a sponsoring firm (or a family member).
- Criticisms of the “Kafala” system included difficult labor conditions for expatriate workers, particularly in the construction sector, the requirement of employer’s consent for exit visas to leave Qatar, and limited flexibility in changing jobs that tended to negatively impact on efficient allocation of human capital.
- Following the award of the hosting of the 2022 FIFA World Cup and ensuing construction activities, the “Kafala“ system faced significant opposition from trade unions and international non-governmental organizations.
- In response, Qatar initiated labor reforms in 2014; the Emir issued a new labor law at the end of October 2015 and its implementation came into effect in December 2016.

### Main change introduced
- The principal reform replaced and abolished the “Kafala” system and entailed an enhanced focus on contracts.
- The new law applies to all workers and the hours of work are established in the contract (approved by Minister of Interior).
- Contracts between employers and employees have to be officially registered, ensuring that the agreed terms are binding.
- The law makes it easier for workers to switch jobs and travel abroad; implementation of the law has commenced.
- According to the authorities, the new law is the latest step towards improving and protecting the rights of every expatriate worker in Qatar.

### Specific provisions of the new law
- The reforms establish the creation of government-backed "grievance committees" to which workers can appeal.
  - Before, workers could only travel with the approval of employer. Now, the worker needs to inform the employer in writing.
  - If employer does not approve, a committee will decide in 3 days (in case of urgency in 1 day).
- The new system establishes contracts of 5 years (instead of 2 years before).
  - Beyond this, the employer and the employee can agree to renew.
  - In the absence of a new contract, the employee can stay in the country for 3 more months to find a new job.
  - For a new job, the person needs a new contract and new approval (given by the Minister of Interior).
- The 2-year cooling off period has been cancelled.
- The penalty for passport confiscation is decided by the court not by the committee.
- An awareness campaign has been launched.

*Box 2. The Main Elements of the New Labor Law — IMF staff summary from the source PDF content.*

### Annex I. Status of Staff Recommendations Made in the 2015

### Annex I. Status of Staff Recommendations Made in the 2015 Article IV Consultation

### Macroeconomic policy mix
- Remain vigilant about overheating pressures — Progress. "Consumer price inflation remains low despite subsidy cuts. Real estate price growth moderated in 2016."
- Implement additional fiscal consolidation measures — Progress. "Significant fiscal measures have been implemented in 2016, and the authorities plan to maintain a prudent fiscal policy in the medium term."
- Improve public investment management — Progress. "The public investment management unit of the ministry of finance is making good progress, with enhanced emphasis on improving the efficiency of public investment and bringing about higher value for money via cost bench-marking. There has been an improvement in collaboration among the line ministries, public investment management department of the ministry of finance and the public procurement agency. A new tender law and public finance law were recently approved."
- Continue fiscal reforms, including strengthening medium-term budgeting — Progress. "Capital expenditures and related operational spending are being reviewed and medium-term envelopes have been established. Policy makers have adopted a number of recommendations by staff to improve the institutional framework, including establishing a macro-fiscal unit and a public investment management department. The Ministry of Finance has put in place a medium term strategy to inform the budget process."

### Financial stability
- Careful monitor financial stability risks — Progress. "The Early Warning System continues to be strengthened."
- Move ahead with the financial sector regulatory agenda — Progress. "The Strategic Plan for the Financial Sector 2013-2016 has been extensively implemented. Progress has been made in implementing Basel III and related regulation, including liquidity ratios, counter-cyclical buffers, and buffers for domestically systemically important banks."
- Monitor liquidity developments and take timely measures — Progress. "The QCB is managing liquidity pressures by adjusting issuance of T-bill and T-bond auctions in coordination with the Ministry of Finance."

### Economic diversification and statistics
- Continue to diversify the economy — Progress. "The government has restated its vision to further diversify its economy away from oil, and is proactively pursuing the implementation of its plans in this regard."
- Improve macroeconomic statistics — Progress. "The authorities have started publishing quarterly GDP by expenditure and finalized the compilation of the Foreign Investment Survey. They are contemplating a new investment survey with a view to addressing the remaining gaps and improving the IIP and BOP statistics."

*Italic: Source: Annex I. Status of Staff Recommendations Made in the 2015 Article IV Consultation (as provided).*

---

### Annex II. Risk Assessment Matrix — Key Risks, Impacts, and Policy Responses

### Persistently lower energy prices / OPEC production uncertainty
- Likelihood: (Low)
- Expected impact: Medium to High. "Persistently lower oil prices would weaken fiscal and external balances. However, the growth impact would be contained given the available fiscal buffers and FIFA-related commitments. That said, adverse confidence effects in the private sector and drying up of liquidity in the banking system as oil-exporting companies slow deposit growth could amplify negative spillovers to the non-oil sector."
- Policy response: "A successful diversification program would help mitigate the impact of oil price volatility. The authorities should ensure adequate banking system liquidity."

### Intensification of regional fragmentation/security dislocation
- Likelihood: (High)
- Expected impact: Medium. "Dislocations could cause a spike in hydrocarbon prices, which would improve fiscal and external balances, but could be more than offset by the impact of weaker investor confidence and possible supply, trade and capital flows disruptions."
- Policy response: "Maintain prudent policies."

### Risks related to real estate sector and large infrastructure investments
- Likelihood: (Medium)
- Expected impact: Low to Medium. "Rapidly-growing real estate credit and infrastructure spending could lead to cost overruns and inflationary pressures in the short term, while delivering disappointing productivity gains over the medium term. Moreover, reputational risks associated with reports of poor labor standards could lead to difficulties with hiring expatriate workers."
- Policy response: 
  - "Enhancements to the early warning system and a comprehensive public investment management framework would help manage macroeconomic risks."
  - "Overheating pressures could be relieved by smoothing capital spending over time and better prioritization, and in case of excessive risk taking and speculative activity also through liquidity withdrawal and macro prudential measures."
  - "Continued efforts to enhance labor protection and mobility would mitigate reputational risks and make growth more inclusive."

### Structurally weak growth in key advanced and emerging economies
- Likelihood: (High/Medium)
- Expected impact: Low. "This would lower Qatar’s fiscal and external surpluses. The spillover channels to the non-oil sector would be similar to those in the oil price drop scenario."
- Policy response: "Policymakers should further intensify diversification efforts to partially offset these potential negative spillovers."

### Significant further strengthening of the US dollar and/or high rates (rapid Fed normalization)
- Likelihood: (High)
- Expected impact: Low to Medium. "Reversal of capital flows, higher risk premiums and possible valuation losses in sovereign wealth fund portfolios. Rollover risks and liquidity strains can have an impact on the banking sector. Individual banks reliant on wholesale funding could face liquidity pressures and banks’ profit margin could shrink. Borrowing costs for Qatar could increase."
- Policy response: "In addition to strong macroeconomic fundamentals, large financial cushions and a policy framework are in place to mitigate the impact."

*Italic: Source: Annex II. Risk Assessment Matrix (as provided).*

---

### Annex III. Public Sector and External Debt Sustainability Analysis (DSA) — Key Findings, Projections, and Scenarios

### Central government debt – baseline projections and key indicators (selected figures)
- As of October 10, 2016 (table header).
- Nominal gross government debt (in percent of GDP):
  - 2014: 26.3
  - 2015: 32.3
  - 2016: 34.9
  - 2017: 47.6
  - 2018: 50.2
  - 2019: 50.8
  - 2020: 51.9
  - 2021: 53.8
  - (additional entry) 54.5
- Change in gross government debt (in percent of GDP):
  - 2014: 0.5
  - 2015: -0.8
  - 2016: 2.7
  - 2017: 12.7
  - 2018: 2.6
  - 2019: 0.6
  - 2020: 1.1
  - 2021: 1.9
  - cumulative: 19.6
- Identified debt-creating flows (in percent of GDP): -16.1, -16.5, 2.5, 10.8, 3.1, -0.4, 0.7, 1.0, 0.8, cumulative 16.1
- Primary deficit (in percent of GDP):
  - 2014: -12.5
  - 2015: -16.5
  - 2016: -7.1
  - 2017: 8.3
  - 2018: 6.7
  - 2019: 3.6
  - 2020: 2.1
  - 2021: 1.9
  - cumulative: 24.3
- Primary (noninterest) revenue and grants (percent of GDP): 40.3 (2014), 48.7 (2015), 47.1 (2016), 25.3 (2017), 24.5 (2018), 25.0 (2019), 24.9 (2020), 24.0 (2021), cumulative 147.1
- Primary (noninterest) expenditure (percent of GDP): 27.8 (2014), 32.2 (2015), 40.0 (2016), 33.7 (2017), 31.3 (2018), 28.6 (2019), 27.0 (2020), 26.0 (2021), cumulative 171.5
- Automatic debt dynamics (interest rate/growth differential, percent): -3.6 (2014), 0.0 (2015), 9.6 (2016), 2.5 (2017), -3.6 (2018), -4.0 (2019), -1.4 (2020), -1.0 (2021), cumulative -8.2
- Residual, including asset changes (percent of GDP): 16.5 (2014), 15.6 (2015), 0.2 (2016), 1.8 (2017), -0.6 (2018), 1.0 (2019), 0.4 (2020), 0.9 (2021), -0.1, cumulative 3.4
- Effective interest rate (in percent) series: 5.7 (footnote definition), 3.8, 3.8, 2.0, 2.4, 2.7, 2.9, 3.0, 3.1 (preserve as presented).

### Key macroeconomic projections shown in DSA (selected)
- Real GDP growth (in percent): 13.5 (2014), 4.0 (2015), 3.6 (2016), 2.7 (2017), 3.4 (2018), 2.8 (2019), 2.3 (2020), 2.0 (2021), 1.6
- Inflation (GDP deflator, in percent): 9.3 (2014), -0.2 (2015), -22.9 (2016), -7.3 (2017), 7.1 (2018), 8.4 (2019), 3.4 (2020), 2.9 (2021), 3.0
- Nominal GDP growth (in percent): 24.1 (2014), 3.8 (2015), -20.2 (2016), -4.8 (2017), 10.8 (2018), 11.5 (2019), 5.8 (2020), 5.0 (2021), 4.7

### Composition and scenarios for government debt
- Alternative scenarios presented include:
  - Baseline Scenario (key values listed above)
  - Historical Scenario (assumes historical values for key variables)
    - Example historical scenario entries: Real GDP growth 12.2 (2017–2021 in that scenario), Primary Balance 12.4 (2017–2021 in that scenario)
  - Constant Primary Balance Scenario (Primary Balance constant at -8.3 in 2016–2021)
- Figures show composition by maturity (short-term vs medium and long-term) and by currency (local currency-denominated vs foreign currency-denominated) over 2014–2021.

### Alternative stress scenarios (selected)
- Oil Price Shock (Oil price is lower by $10 in 2016-21):
  - Primary Balance under Oil Price Scenario: -8.3 (2016), -10.2 (2017), -7.1 (2018), -5.6 (2019), -5.3 (2020), -4.9 (2021)
  - Effective interest rate under Oil Price Scenario: 2.0 (2016), 2.3 (2017), 2.0 (2018), 1.8 (2019), 1.7 (2020), 1.6 (2021)
- Growth-Spending Scenario (Real GDP growth is lower by 1 percentage point and non-interest expenditure-to-GDP ratio is higher by 2 percentage points than baseline in 2016-21):
  - Real GDP growth: 2.7 (2016), 2.4 (2017), 1.8 (2018), 1.3 (2019), 1.0 (2020), 0.6 (2021)
  - Primary Balance: -8.3 (2016), -8.7 (2017), -5.6 (2018), -4.1 (2019), -3.9 (2020), -3.6 (2021)
- Combined Scenario (combines oil price and growth-spending shocks):
  - Primary Balance: -8.3 (2016), -12.2 (2017), -9.1 (2018), -7.6 (2019), -7.3 (2020), -6.9 (2021)
  - Real GDP growth: same as Growth-Spending Scenario (2.7; 2.4; 1.8; 1.3; 1.0; 0.6)

### External debt sustainability — key table highlights (Table 1)
- Baseline: External debt (percent of GDP):
  - 2011: 77.9
  - 2012: 86.4
  - 2013: 81.4
  - 2014: 80.7
  - 2015: 110.6
  - 2016: 142.1
  - 2017: 139.0
  - 2018: 131.5
  - 2019: 129.9
  - 2020: 129.4
  - 2021: 129.6
- Change in external debt (percent of GDP): -10.0 (2011), 8.5 (2012), -5.0 (2013), -0.8 (2014), 30.0 (2015), 31.5 (2016), -3.1 (2017), -7.5 (2018), -1.6 (2019), -0.5 (2020), 0.2 (2021)
- Identified external debt-creating flows (percent of GDP): -49.8 (2011), -40.3 (2012), -31.1 (2013), -24.2 (2014), 13.8 (2015), 1.3 (2016), -3.1 (2017), -2.4 (2018), -2.8 (2019), -3.1 (2020), -3.4 (2021)
- Current account deficit, excluding interest payments (percent of GDP): -31.8 (2011), -34.0 (2012), -31.5 (2013), -25.0 (2014), -10.5 (2015), -0.2 (2016), -3.3 (2017), -3.7 (2018), -4.6 (2019), -5.4 (2020), -5.9 (2021)
- Exports (percent of GDP): 72.6 (2011), 76.5 (2012), 72.7 (2013), 68.0 (2014), 56.1 (2015), 48.4 (2016), 51.4 (2017), 49.5 (2018), 48.0 (2019), 46.9 (2020), 46.2 (2021)
- Imports (percent of GDP): 26.1 (2011), 29.3 (2012), 29.7 (2013), 31.0 (2014), 36.0 (2015), 39.6 (2016), 39.6 (2017), 38.0 (2018), 36.8 (2019), 36.0 (2020), 35.6 (2021)
- Net non-debt creating capital inflows (negative): 3.6 (2011), 0.8 (2012), 4.5 (2013), 2.8 (2014), 1.8 (2015), 2.2 (2016), 2.0 (2017), 1.8 (2018), 1.7 (2019), 1.6 (2020), 1.5 (2021)
- Automatic debt dynamics (percent of GDP): -21.6 (2011), -7.1 (2012), -4.1 (2013), -1.9 (2014), 22.5 (2015), -0.7 (2016), -1.8 (2017), -0.4 (2018), 0.2 (2019), 0.7 (2020), 1.1 (2021)
- Residual, incl. change in gross foreign assets (percent of GDP): 39.8 (2011), 48.8 (2012), 26.1 (2013), 23.4 (2014), 16.1 (2015), 30.2 (2016), 0.0 (2017), -5.1 (2018), 1.1 (2019), 2.7 (2020), 3.5 (2021)
- External debt-to-exports ratio (in percent): 107.3 (2011), 113.0 (2012), 112.0 (2013), 118.6 (2014), 197.4 (2015), 293.4 (2016), 270.3 (2017), 265.9 (2018), 270.4 (2019), 275.8 (2020), 280.8 (2021)
- Gross external financing need (in billions of US dollars):
  - 2011: -11.1
  - 2012: -14.8
  - 2013: 15.7
  - 2014: 13.7
  - 2015: 53.2
  - 2016: 93.5
  - 2017: 118.0
  - 2018: 120.0
  - 2019: 119.9
  - 2020: 117.8
  - 2021: 116.5
- Gross external financing need (in percent of GDP): -6.6 (2011), -7.9 (2012), 7.9 (2013), 6.6 (2014), 32.3 (2015), 59.7 (2016), 68.0 (2017), 62.0 (2018), 58.6 (2019), 54.8 (2020), 51.8 (2021)

### Key macroeconomic assumptions underlying baseline (selected)
- Real GDP growth (in percent): 12.0 (10-Year Average), 4.7 (Standard Deviation), 4.4 (2011), 4.0 (2012), 3.6 (2013), 12.2 (2014?), 8.0, 2.7 (2016), 3.4 (2017), 2.8 (2018), 2.3 (2019), 2.0 (2020), 1.6 (2021)
- GDP deflator in US dollars (change in percent): 19.7 (10-Year Average), 6.4 (Std Dev), 1.9, -0.2, -22.9, 3.0, 15.7, -7.3, 7.1, 8.4, 3.4, 2.9, 3.0
- Nominal external interest rate (in percent): 1.1 (10-Year Average), 1.2 (Std Dev), 1.3, 1.3, 2.2, 2.7, 2.1, 2.1, 2.0, 2.5, 2.5, 2.6, 2.5
- Growth of exports (US dollar terms, in percent): 56.3 (10-Year Average), 17.3 (Std Dev), 1.1, -3.0, -34.2, 16.9, 32.8, -17.8, 17.6, 7.2, 2.7, 2.5, 3.0
- Growth of imports (US dollar terms, in percent): 47.4 (10-Year Average), 24.9 (Std Dev), 7.8, 8.6, -7.4, 18.3, 24.1, 4.7, 10.9, 6.9, 2.4, 2.6, 3.5
- Current account balance, excluding interest payments (percent of GDP): 31.8 (10-Year Average), 34.0 (Std Dev?), 31.5, 25.0, 10.5, 21.9, 9.1, 0.2, 3.3, 3.7, 4.6, 5.4, 5.9
- Net non-debt creating capital inflows: -3.6, -0.8, -4.5, -2.8, -1.8, -0.4, 3.2, -2.2, -2.0, -1.8, -1.7, -1.6, -1.5

### External debt vulnerability tests and shocks (figure highlights)
- External debt in percent of GDP under baseline: 123 (label in figures)
- Bound tests include shocks: interest rate shock, current account shock, growth shock, combined shock, and real depreciation shock (one-time real depreciation of 30 percent occurs in 2010 noted in figure footnote).
- Example scenario averages shown in figure boxes: Baseline and scenario averages for variables (e.g., Growth shock, CA shock) are presented in figures.

*Italic: Source: Annex III. Public Sector and External Debt Sustainability Analysis (figures and Table 1 as provided).*

### Annex IV. External Stability Assessment

### Annex IV. External Stability Assessment

### Current account developments and drivers
- Qatar’s current account deteriorated in 2016 due to the sharp decline in global oil prices.
- The current account balance fell to a deficit estimated at 2.2 percent of GDP in 2016, from a surplus of 8.4 percent in 2015.
- The decline reflected lower oil prices, while imports were broadly stable in dollar terms because of sustained high public investment expenditure and non-hydrocarbon growth.
- The sharp decline in oil prices and related lower government revenue slowed the pace of accumulation of financial assets by the public sector.
- The change in the financing model in the banking system—greater resort to external financing (wholesale funding and foreign deposits)—has led to higher capital inflows.

### Exchange rate and trade structure
- Qatar’s real effective exchange rate has been appreciating broadly in line with the U.S. dollar.
- The Riyal appreciated by 11 percent on average during 2015 and by close to 2 percent in 2016.
- Limited import substitution, reliance on hydrocarbon exports, and the use of elastically supplied foreign workers limit the scope for the exchange rate to affect the current account.

### Capital and financial accounts; reserves and buffers
- Capital and financial accounts have improved as outflows eased substantially in the past two years.
- Central bank foreign exchange reserves declined from $37 billion in 2015 to $30 billion in 2016.
- QCB reserves represent around 24 percent of broad money and cover 5 months of imports of goods and services.
- The total amount of foreign exchange reserves held by QCB covers 53 percent of the Fund’s reserve metric.
- The stock of assets at the Qatar Investment Authority is estimated at about $335 billion in 2016, providing a large additional buffer.

### External sustainability — Permanent income model (External Sustainability approach, ES)
- The permanent income model assesses external imbalances by focusing on optimal savings of hydrocarbon revenue.
- The ES approach estimates the current account gap as the deviation from the current account balance required to provide a constant real income per capita.
- The gap is estimated at about 4.6 percentage points of GDP in 2016, and narrows to around 2.5 percentage points over the medium term in the baseline scenario.
- Implication: even though Qatar’s external position is projected to turn into surplus, it would be weaker than the level needed to preserve intergenerational equity.

### External sustainability — Macro-balance / EBA approaches
- The standard EBA-Lite model implies an implausibly high current account norm of about 18 percent of GDP surplus for Qatar, and a current account gap of 20 percent of GDP; this divergence appears to be entirely explained by the residual, indicating poor predictive power of EBA-Lite for Qatar.
- The EBA-Oil model (an adapted EBA-Lite for undiversified oil exporters) yields:
  - A current account norm consistent with optimal fiscal policy of 2.3 percent of GDP surplus in 2016.
  - The actual current account was a deficit of 2.2 percent of GDP in 2016.
  - The comparison highlights the key role of fiscal policy to ensure external sustainability.
- Overall assessment: the magnitude of estimated current account gaps is sensitive to methodology, but analysis suggests that the gap is largely driven by suboptimal fiscal savings.

### Policy implications and medium-term outlook
- With gradual fiscal adjustment over the medium term, the estimated current account gap could be closed.
- Analysis highlights the key role of fiscal policy and sufficient saving of hydrocarbon revenues to achieve external sustainability and intergenerational equity.
- Fiscal policy is therefore central to closing the current account gap identified by both the ES and EBA-Oil approaches.

*Source: Annex IV. External Stability Assessment (IMF staff estimates and analysis).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1788.pdf_