## 1qatea2022001 ## Source details **Canonical URL:** [1qatea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1qatea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1qatea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1qatea2022001.pdf.json) --- ### Recent macroeconomic developments - Real GDP growth: 0.7 (2019), -3.6 (2020), 1.5 (2021). - Hydrocarbon growth: -1.7 (2019), -2.0 (2020), -0.3 (2021). - Nonhydrocarbon growth: 2.2 (2019), -4.5 (2020), 2.7 (2021). - CPI inflation (average): -0.7 (2019), -2.7 (2020), 2.3 (2021). Headline inflation reached 6.5 percent (y/y) in December 2021 before moderating. - Drivers of 2021 recovery: - Strong revival in domestic demand. - Buoyant private credit growth: 9.5 percent in 2021. - Higher oil and gas prices. - Preparation for the 2022 FIFA World Cup. - Employment: declined by 6.9 percent (y/y) in 2021Q2, mainly among expatriates. - Banking sector: - Tier 1 capital ratio: 18 percent (by end-2021). - Non-performing loans ratio: 2.4 percent (by end-2021). - Banks’ reliance on foreign funding: 39 percent of total liabilities (110 percent of GDP) by end-2021. - Fiscal and external positions: - Fiscal surplus: 0.3 percent of GDP (2021). - Current account surplus: 14.7 percent of GDP (2021). - Central government debt: declined from 73 percent (end-2020) to 58 percent of GDP (end-2021). - Major financing events: - Sovereign issued a US$10 billion Eurobond in 2020. - Qatar Energy borrowed US$12.5 billion in 2021 for a major LNG expansion project. ### Outlook and projections - Inflation projection: 3.5 percent in 2022, before declining over the medium term. - Real GDP projections: 3.4 (2022), 2.5 (2023). - Hydrocarbon: 2.3 (2022), 1.9 (2023). - Nonhydrocarbon: 4.1 (2022), 2.8 (2023). - Public finances (percent of GDP): - Revenue: 29.7 (2021), 34.1 (2022), 36.8 (2023). - Expenditure: 29.4 (2021), 28.6 (2022), 28.4 (2023). - Central government fiscal balance: 0.3 (2021), 5.4 (2022), 8.5 (2023). - Money and credit: - Broad money change: 1.4 (2021), 16.9 (2022), 8.2 (2023). - Credit to private sector: 9.5 (2021), 7.4 (2022), 8.7 (2023). - External sector (percent of GDP and USD): - Exports: 58.8 (2021), 64.6 (2022), 58.5 (2023). - Imports: 34.1 (2021), 33.1 (2022), 33.3 (2023). - Current account balance (billions of U.S. dollars): 26.4 (2021), 44.9 (2022), 34.5 (2023). - Current account balance (percent of GDP): 14.7 (2021), 19.9 (2022), 15.1 (2023). - External debt and reserves: - External debt: 161.5 (2021), 131.5 (2022), 133.3 (2023). - Central Bank’s reserves: 23.5 (2021), 31.3 (2022), 36.3 (2023). - Reserves in months of next year’s imports: 6.6 (2021), 10.9 (2022), 12.1 (2023). - Exchange rate: 3.6 (2019–2023). Real effective exchange rate change: 1.7 (2021). ### Banking sector condition, outlook, and risks - Key indicators (by end-2021): - Tier 1 capital ratio: 18 percent. - Non-performing loans ratio: 2.4 percent. - System-wide loan-to-deposit (LTD) ratio: 125 percent. - Banks’ foreign liabilities: 39 percent of total liabilities, or 110 percent of GDP. - Liquidity: abundant, supported by QCB’s zero-interest repo. - Profitability: remained stable. - Short- and medium-term outlook: - Non-hydrocarbon growth: 4.1 percent (2022). - Hydrocarbon growth: 2.3 percent (2022). - Real GDP growth: 3.4 percent (2022). - Inflation: 3.5 percent (period average) in 2022. - Current account surplus: expected to widen to 20 percent of GDP in 2022. - Spillovers from the war in Ukraine: - Higher hydrocarbon prices benefit Qatar through windfalls. - Higher food prices raise inflation and could lead to higher food subsidies. - In 2020, 48 percent of Qatar’s grains imports were from Russia and Ukraine. - Potential losses from QIA’s sizeable investments in Russia. - Risk assessment: - Short-run risks broadly balanced; medium-term risks tilted to the downside. - Upside risks: higher-than-expected hydrocarbon prices; resolution of diplomatic rift; World Cup effects. - Downside risks: protracted pandemic; tighter global financial conditions; disorderly exit from support measures; procyclical fiscal policy; delayed reforms; climate stressors; disruptions in gas production; eventual decline in global hydrocarbon demand. ### North Field Expansion Project — impacts and specifics - Project scope and capacity: - Raise LNG output from 77 million tons per annum (mtpa) to 110 mtpa by end-2027 (phase 1) and to 126 mtpa by 2028 (phase 2). - Cost and financing: - Phase 1 cost: around $28.7 billion, mostly capital spending financed by Qatar Energy (QE). - Growth and fiscal contributions: - Construction phase adds an average 0.3 percentage points (ppts) of GDP to non-hydrocarbon growth annually. - By 2027, NF expansion expected to raise real GDP by 5.7 percent cumulatively. - Expansion expected to add around 3.5 percent of GDP in export receipts per year by 2027. - Contribution of hydrocarbon sector to real GDP and fiscal revenues projected to increase by 2 ppts between 2021 and 2027. - QE expected to retain part of increased receipts to pay off debt, resulting in a more gradual increase in fiscal revenues. - Climate and resource initiatives for the project: - Carbon capture and storage to reduce carbon emissions from gas liquefaction and storage by about 25 percent. - Solar photovoltaic facilities to provide part of the needed electricity. - New water recovery system to recover 75 percent of the plant's tertiary water, conserving 10.7 million cubic meters annually. ### World Cup — expected economic impact and spillovers - Infrastructure and spending: - Qatar announced a $200 billion infrastructure program after winning the bid in 2010. - Direct expenses to build eight stadiums reported between US$6.5 and US$10 billion. - Visitor and tourism impact: - Up to 1.2-1.5 million visitors are expected, potentially bringing annual visitors closer to pre-pandemic levels of about 2 million. - Potential contribution to non-hydrocarbon growth could reach around 0.8 ppts (pre-pandemic/pre-diplomatic rift level), subject to global uncertainty. - Spillovers to neighboring countries: - Limited accommodation in Qatar implies many visitors may stay in Oman and the UAE, spurring demand there. - End of diplomatic rift could boost intra-regional travel and benefit airlines including Qatar Airways. - Legacy and reforms: - Stadiums built with new sustainability technologies. - Event prompted reforms including abolishment of the Kafala system and other measures improving protection and labor market mobility of expatriate workers. ### Fiscal policy recommendations and strategy - Near-term guidance: - Maintain fiscal discipline amid high hydrocarbon prices. - Save hydrocarbon windfalls; resist spending pressures including raising food and energy subsidies. - Use favorable cyclical conditions to support medium-term consolidation. - Medium-term, three-pillar, growth-friendly consolidation strategy: 1. Diversify revenues and accelerate VAT implementation: - Staff suggested introducing a broad-based VAT as soon as possible in 2023, with an introductory rate of 5 percent as per the GCC agreement. - VAT could bring additional revenues of 1.2-1.5 percent of GDP annually. 2. Enhance current spending efficiency through subsidy reforms and public wage bill rationalization: - Reduce utility subsidies while providing targeted support. - Public wage bill containment and tightening eligibility for benefits. 3. Reorient spending to boost productivity, diversification, and green investment: - Deploy fiscal space to invest in health, education/training, innovation, digitalization, and green infrastructure. - Fiscal projections and metrics: - Central government debt projected to decline from 58 percent of GDP (2021) to 36 percent of GDP in 2027. - 51 percent of the debt consolidation projected to be driven by the primary fiscal balance. - Estimated fiscal space from reforms: - Reforms to implement VAT, remove energy subsidies, and contain wage bill estimated to generate an additional fiscal space of 3½ percent of GDP over the medium term. - These reforms could increase annual potential non-hydrocarbon GDP growth by 1.2 ppts. ### Monetary policy and financial-stability recommendations - Exchange rate and policy rates: - Peg assessed as credible monetary anchor; peg: QR 3.64 = US$1.00 since July 2001. - Since March 2022, QCB increased deposit rate by 50 bps, lending rate by 25 bps, and repo rate by 75 bps. - Staff supported gradual reduction in zero-interest repo facility and increases in QCB’s policy rates following U.S. Federal Reserve moves. - Liquidity and market development: - Strengthen liquidity management via improved liquidity forecasting and coordination among fiscal authorities, QIA and QCB. - Deepen financial markets to enhance monetary transmission. - Contain balance sheet vulnerabilities from FX exposure. - Financial sector safeguards and supervisory measures: - Continue gradual unwinding of broad support and move toward targeted support for viable, hard-hit borrowers. - Maintain diligent supervision and implement prudential measures to ensure stability. - Adopt an adequate bank resolution framework and enhanced insolvency regime. - Time-bound plans to reduce exposure to external financing and align LTD and NSFR with prudential limits. - Deepen domestic financial markets, promote term savings, and consider issuing long-term capital instruments. - Consider an FSAP Update to strengthen oversight and frameworks. ### Financial integrity, fintech, and AML/CFT - Fintech developments and supervision: - Rising fintech activities since the pandemic; QCB and QDB had initial success with fintech incubator and accelerator programs. - Issuance of regulations on e-payments, e-KYC, e-signature, and electronic insurance aggregation. - Registered e-commerce websites grew by 416 in 2020; banks launched mobile contactless payments; digital banking transactions surged in 2020. - Authorities view fintech as strategic and sought IMF technical assistance. - AML/CFT framework: - Law No. 20/2019 on Combating ML and TF enacted in June 2019; Executive Regulation issued in December 2020. - Law No. 27/2019 on Combatting Terrorism enacted in December 2019. - Implementing regulations on targeted financial sanctions issued. - QCB issued AML/CFT Instructions for financial institutions with revisions in May 2020. - RACA conducted TF risk assessment on NPOs in 2020. - Qatar to undergo MENAFATF mutual evaluation in July 2022. - Effective implementation of supervisory strategies is critical. ### Structural reforms, labor market, and inclusion - Reforms implemented: - Abolition of Kafala. - Mandatory minimum wage and allowances for food and housing: minimum wage QR1,000; US$275 equivalent; 8.5 percent of average monthly wage in 2021. - Residency program for real estate investment. - Full foreign ownership of Qatari companies. - New PPP law. - Digitalization and competitiveness: - Qatar E-government Strategy (2020). - Smart Qatar Program (TASMU) launched July 2021. - National Fintech Strategy and Qatar FinTech Hub (QFTH) launched in 2019; national fintech hub launched in 2021. - Labor market and human capital reforms: - Increase female labor participation; suggested regulatory reforms for equal remuneration, paid parental leave, equal retirement age and pension. - Incentivize private sector employment: 95 percent of employed Qataris work for the public sector. - Education reforms: adapt curricula to labor market needs, focus on on-the-job training; education spending per student among highest in the world but academic performance lags peers. - Business environment, SMEs, and PPPs: - Personal savings and net worth main source of finance for SMEs: 76 percent in 2020; bank loans 13 percent; equity 5 percent. - Need to improve access to finance via domestic financial deepening and enhanced insolvency procedures. - Macroeconomic statistics and data dissemination: - Qatar publishes macro data through a NSDP as a GDDS subscriber. - Gaps remain in coverage/granularity of central/general government operations, debt statistics, and International Investment Position. - Quarterly GDP published since 2013; authorities improving NSDP portal. ### External position, debt sustainability, and buffers - External position assessment: - Staff assesses 2021 external position as stronger than level implied by fundamentals and desirable policies. - With recovering domestic demand and declining hydrocarbon prices, external balance projected to fall below that level over medium term. - Current account and reserves: - Current account: surplus 14.7 percent of GDP (2021); projected 19.9 percent (2022). - QCB foreign reserves: $42 billion at end-2021 (23.5 percent of GDP, 6.6 months of prospective imports, 25 percent of broad money, 145 percent of short-term external debt). - QIA foreign assets estimated at 213 percent of GDP at end-2021. - Together they account for 489 percent of the ARA metric. - External debt and stress tests: - Gross external debt: 187 percent of GDP (end-2020) to 161.5 percent (end-2021); projected to fall to nearly 128.5 percent of GDP in 2027. - Stress-test impacts by 2027 (changes relative to baseline): - Interest rate shock: increases external debt by 2.8 percent of GDP. - Negative growth shock: raises external debt by about 13.2 percent of GDP. - Negative non-interest current account shock: increases external debt by about 38.8 percent of GDP. - Real depreciation shock (30 percent in 2023): raises external debt by about 35.2 percent of GDP. - Public debt DSA baseline assumptions (selected): - Real GDP growth: 3.4 (2022), 2.5 (2023), 1.7 (2024), 2.8 (2025), 2.7 (2026), 3.8 (2027). - Primary Balance: 6.9 (2022), 9.9 (2023), 7.2 (2024), 5.2 (2025), 5.0 (2026), 6.6 (2027). - Effective interest rate: 3.3 (2022), 3.1 (2023–2027). ### Climate risks, actions, and recommendations - Climate risks and vulnerabilities: - Semi- to hyper-aridity; rainfall 50–80 mm/year; temperatures 20° C to 50° C. - Average daily household water consumption: 430 liters. - Main freshwater sources: desalination 61 percent, groundwater 24 percent, reuse 15 percent. - Temperature increased by 1.5 °C on average since 2000. - Sea level rise: approximately 3 mm/year at Mina Sulman and 1.5 mm/year at Doha. - Hydrocarbon dependence: around 80 percent of total budget revenue, 85 percent of total exports, and 40 percent of GDP. - If no action taken, GHG emissions would increase by 33 percent by 2030. - Energy subsidies and price gaps: - Explicit and implicit energy subsidies: 3.7 and 6.4 percent of GDP, respectively. - Natural gas retail price: USD 0.50 per GJ vs estimated supply cost USD 2.7. - Undercosting of electricity equals 0.9 percent of GDP in 2021. - Climate actions and targets: - National Environment and Climate Change Strategy (NECCS) and Climate Change Action Plan (CCAP). - CCAP target: reduce GHG emissions by 25 percent by 2030. - CCAP includes 36 mitigation measures and over 300 adaptation measures. - Region’s largest carbon storage plant developed in 2019 to capture over 5 million tons of carbon per year. - First 800 MW solar power plant introduced; goal of 10 GW solar capacity and 20 percent electricity from solar by 2030. - Plan to plant 1 million trees before FIFA World Cup 2022 and 10 million trees by 2030. - Emissions mitigation simulation findings: - Gradually aligning natural gas and electricity prices with supply costs over eight years and installing 800 MW of solar in 2022 could allow Qatar to meet its mitigation pledge, including additional emissions from NF LNG expansion. - Removing natural gas and electricity subsidies estimated to save roughly 2 percent of GDP annually by 2030. - Estimated lives saved from reduced natural gas consumption: around 200 lives by 2030. - Policy recommendations: - Enhance interagency coordination, especially for infrastructure in low-lying coastal areas. - Enhance green energy auctioning design and develop long-term solar auctioning strategy. - Upgrade regulatory frameworks and governance for green financing and renewable energy. - Gradually phase out explicit energy subsidies by 2030 and reallocate savings to productive spending. - Phase subsidy removal over several years to limit economic costs and support vulnerable households and industries. ### Staff appraisal and concluding guidance - Recovery and risks: - Qatar managed the Covid-19 pandemic well and a robust recovery is underway. - Near-term risks broadly balanced; medium- to long-term risks tilted to the downside. - Financial sector vigilance: - Diligent banking supervision critical during gradual exit from support measures. - QCB’s phased reduction in zero-interest repo and move toward targeted borrower support are appropriate. - Prompt recognition of NPLs, strengthened insolvency regime, and reduced sovereign-bank nexus recommended. - Fiscal and structural priorities: - Save hydrocarbon windfalls and pursue a gradual, growth-friendly medium-term consolidation. - Accelerate VAT introduction, subsidy reforms, public wage rationalization, and reorient public investment to support diversification. - Develop a credible and operational medium-term fiscal framework (MTFF) with enhanced fiscal transparency and governance. - Exchange rate and monetary framework: - Peg remains credible; liquidity management and financial market deepening recommended to enhance monetary transmission. - Structural reforms: - Accelerate labor market reforms, boost productivity and inclusion, improve business environment, and leverage digitalization and climate adaptation/mitigation. *IMF Staff Report for the 2022 Article IV Consultation (Qatar), May 13, 2022 — excerpts from 1qatea2022001.* ### 2.3 percent (period average) in 2021, driven by the strong recovery in domestic demand, ### 1qatea2022001 - 2.3 percent (period average) in 2021, driven by the strong recovery in domestic demand, ### Recent macroeconomic developments - Real GDP growth: 0.7 (2019), -3.6 (2020), 1.5 (2021). - Hydrocarbon growth: -1.7 (2019), -2.0 (2020), -0.3 (2021). - Nonhydrocarbon growth: 2.2 (2019), -4.5 (2020), 2.7 (2021). - CPI inflation (average): -0.7 (2019), -2.7 (2020), 2.3 (2021). Headline inflation reached 6.5 percent (y/y) in December 2021 before moderating more recently. - Drivers of 2021 recovery: strong revival in domestic demand, buoyant private credit growth (9.5 percent in 2021), higher oil and gas prices, and preparation for the 2022 FIFA World Cup. - Employment: declined by 6.9 percent (y/y) in 2021Q2, mainly among expatriates. - Banking sector: Tier 1 capital ratio rose to 18 percent (by end-2021). Non-performing loans ratio inched up to 2.4 percent (by end-2021). Banks’ reliance on foreign funding increased to 39 percent of total liabilities (110 percent of GDP) by end-2021, though prudential measures have recently reduced this reliance. - Fiscal and external position improvements: fiscal surplus of 0.3 percent of GDP (2021); current account surplus of 14.7 percent of GDP (2021). Central government debt declined from 73 percent (end-2020) to 58 percent of GDP (end-2021). - Major financing: sovereign issued a US$10 billion Eurobond in 2020; Qatar Energy borrowed US$12.5 billion in 2021 for a major LNG expansion project. ### Outlook and projections - Inflation projection: 3.5 percent in 2022, before declining over the medium term. - Real GDP projections: 3.4 (2022), 2.5 (2023). - Hydrocarbon: 2.3 (2022), 1.9 (2023). - Nonhydrocarbon: 4.1 (2022), 2.8 (2023). - Public finances (percent of GDP): - Revenue: 29.7 (2021), 34.1 (2022), 36.8 (2023). - Expenditure: 29.4 (2021), 28.6 (2022), 28.4 (2023). - Central government fiscal balance: 0.3 (2021), 5.4 (2022), 8.5 (2023). - Money and credit: Broad money change: 1.4 (2021), 16.9 (2022), 8.2 (2023). Credit to private sector: 9.5 (2021), 7.4 (2022), 8.7 (2023). - External sector (percent of GDP): Exports 58.8 (2021), 64.6 (2022), 58.5 (2023). Imports 34.1 (2021), 33.1 (2022), 33.3 (2023). Current account balance (billions of U.S. dollars): 26.4 (2021), 44.9 (2022), 34.5 (2023). Current account balance (percent of GDP): 14.7 (2021), 19.9 (2022), 15.1 (2023). - External debt and reserves: External debt 161.5 (2021), 131.5 (2022), 133.3 (2023). Central Bank’s reserves 23.5 (2021), 31.3 (2022), 36.3 (2023). Reserves in months of next year’s imports: 6.6 (2021), 10.9 (2022), 12.1 (2023). - Exchange rate: 3.6 (2019–2023). Real effective exchange rate change: 1.7 (2021). ### Risks and assessment - Near-term risks: recovery may be supported by the 2022 FIFA World Cup, high hydrocarbon prices, and an LNG expansion project. - Downside risks over the medium term: a more protracted pandemic, oil market volatility, tighter global financial conditions, and worsening geopolitical tensions. - Staff assessment: 2021 external position assessed to be stronger than the level implied by fundamentals and desirable policies; with recovering domestic demand and declining hydrocarbon prices, external balance projected to fall below that level over the medium term. ### Fiscal policy recommendations - Maintain fiscal discipline amid high hydrocarbon prices and undertake a gradual, growth-friendly medium-term consolidation. - Diversify non-hydrocarbon revenues, especially to introduce the VAT. - Enhance current spending efficiency, including public employment and subsidy reforms. - Reorient public investment to promote diversification and growth. - Develop a well-designed and operational medium-term fiscal framework with greater fiscal transparency. - Use favorable cyclical conditions to support medium-term consolidation. ### Financial sector and monetary policy recommendations - Continue gradual unwinding of broad support measures and move toward targeted support for viable, hard-hit borrowers. - Maintain diligent banking supervision and implement prudential measures to ensure financial stability. - Adopt an adequate bank resolution framework and enhanced insolvency regime. - Deepen domestic financial markets and reduce the sovereign-bank nexus. - Improve liquidity management, strengthen monetary transmission channels, and contain balance sheet vulnerabilities from FX exposure. - Develop an adequate fintech regulatory framework and further strengthen the AML/CFT framework. ### Structural reforms and climate actions - Reforms implemented: abolition of Kafala, mandatory minimum wage and allowances for food and housing (minimum wage QR1,000; US$275 equivalent; 8.5 percent of average monthly wage in 2021), residency program for real estate investment, full foreign ownership of Qatari companies, and a new PPP law. - Digitalization and competitiveness initiatives: Qatar E-government Strategy (2020), Smart Qatar Program (TASMU) launched July 2021. - Climate strategy: National Environment and Climate Change Strategy envisages a 25 percent reduction of trend greenhouse gas (GHG) emissions by 2030. - Directors’ recommendations: accelerate structural reforms to improve productivity and inclusion, enhance private sector competitiveness, incentivize private sector employment, increase female labor participation, and accelerate climate mitigation and adaptation. *IMF Staff Report for the 2022 Article IV Consultation (Qatar), May 13, 2022* ### 5. Banks remain well-capitalized and liquid, but financial risks have risen (Figure 5). By end- ### 5. Banks remain well-capitalized and liquid, but financial risks have risen (Figure 5) ### Banking sector condition and key indicators - By end-2021, Tier 1 capital ratio rose to 18 percent. - Non-performing loans (NPLs) ratio inched up to 2.4 percent. - Loans under moratoria were not subject to reclassification yet. - System-wide loan-to-deposit (LTD) ratio reached 125 percent. - Banks’ foreign liabilities were 39 percent of total liabilities, or 110 percent of GDP. - Liquidity was abundant supported by the QCB’s zero-interest repo. - Bank profitability remained stable. ### Short- and medium-term outlook and macro risks - Growth projections and inflation: - Non-hydrocarbon growth is expected to reach 4.1 percent in 2022. - Hydrocarbon growth is likely to reach 2.3 percent in 2022. - Real GDP growth in 2022 is expected at 3.4 percent. - Inflation is expected to rise to 3.5 percent (period average) in 2022. - External balances: - Current account surplus is expected to widen to 20 percent of GDP in 2022. - Drivers and structural considerations: - Medium-term outlook supported by the North Field (NF) LNG expansion project. - World Cup-induced buoyancy expected to boost domestic demand. - NF expansion will further increase Qatar’s reliance on fossil fuel. - Spillovers from the war in Ukraine: - War pushed hydrocarbon prices up, benefiting Qatar through windfalls. - Higher food prices contributed to higher inflation and could lead to higher food subsidies. - Qatar relied significantly on Russia and Ukraine for wheat and related food imports before the war; in 2020, 48 percent of Qatar’s grains imports were from Russia and Ukraine. - Potential losses could arise from Qatar’s sizeable investments in Russia (through the Qatar Investment Authority, QIA). - Risk balance: - Short-run risks broadly balanced; medium-term risks tilted to the downside. - Upside: higher-than-expected hydrocarbon prices; resolution of the diplomatic rift could boost investment, trade and tourism; World Cup could spur visitor interest. - Downside: protracted pandemic reducing World Cup benefits; tighter and more volatile global financial conditions harming banks reliant on foreign funding; disorderly exit from financial support measures; procyclical fiscal policy; delayed reforms; worsening climate stressors; disruptions in expanding gas production; eventual decline in global hydrocarbon demand. ### North Field Expansion Project (Box 1) — impacts and specifics - Project scope and capacity: - Raise LNG output from the current 77 million tons per annum (mtpa) to 110 mtpa by end-2027 (phase 1) and to 126 mtpa by 2028 (phase 2). - Cost and financing: - Phase 1 is expected to cost around $28.7 billion, most of which will be capital spending financed by Qatar Energy (QE). - Growth and fiscal contributions: - Construction phase should add an average 0.3 percentage points (ppts) of GDP to non-hydrocarbon growth annually. - By 2027, the NF expansion is expected to raise real GDP by 5.7 percent cumulatively. - The expansion is expected to add around 3.5 percent of GDP in export receipts per year by 2027. - Contribution of the hydrocarbon sector to real GDP and fiscal revenues are projected to increase by 2 ppts between 2021 and 2027. - QE is expected to retain part of the increase in receipts to pay off debt issued to finance the project, resulting in a more gradual increase in fiscal revenues. - Climate and resource initiatives: - Carbon capture and storage technology to reduce carbon emissions from gas liquefaction and storage by about 25 percent. - Solar photovoltaic facilities to provide a share of the needed electricity for the project. - A new water recovery system to recover 75 percent of the plant's tertiary water, conserving 10.7 million cubic meters of water annually. ### World Cup (Box 2) — expected economic impact and spillovers - Infrastructure and spending: - After winning the bid in 2010, Qatar announced a $200 billion infrastructure program. - Direct expenses to build eight stadiums have been reported to be between US$6.5 and US$10 billion. - Visitor and tourism impact: - Reportedly, up to 1.2-1.5 million visitors are expected, which could help bring annual visitors closer to pre-pandemic levels of about 2 million. - Potential contribution to non-hydrocarbon growth could reach the pre-pandemic (and pre-diplomatic rift) level of around 0.8 ppts, subject to significant global uncertainty. - Spillovers to neighboring countries: - Limited accommodation capacity in Qatar means many visitors likely to stay in neighboring countries such as Oman and the UAE, spurring demand there. - End of the diplomatic rift could facilitate intra-regional travel, benefiting airlines including Qatar Airways. - Legacy and reforms: - Stadiums built with new sustainability technologies. - Event prompted reforms, including abolishment of the Kafala system and other supplemental reforms—improving protection and labor market mobility of expatriate workers. ### Policies to ensure stability and promote economic transformation - Overarching policy priorities: - (i) Carefully manage the exit from remaining financial sector support to avoid further buildup of financial sector vulnerabilities. - (ii) Maintain fiscal discipline amid hydrocarbon revenue windfalls and embark on a growth-friendly fiscal consolidation. - (iii) Advance the reform agenda to achieve Qatar National Vision 2030 and build a more diversified, knowledge-based, and greener economy. A. Safeguarding Financial Stability amid a Gradual Exit - QCB exit strategy and loan moratorium adjustments: - Staff supported the gradual reduction in the zero-interest repo facility. - QCB replaced blanket loan moratorium with targeted support: banks will have three months to assess borrowers’ repayment capacity and treat loans accordingly: - 1) borrowers with good repayment capacity will resume normal debt service, - 2) viable but distressed borrowers could restructure their loans once, - 3) unviable borrowers should resolve their debt. - Critical implementation elements: prudent assessment of asset quality and risks; proper restructuring; prompt recognition of NPLs and losses. - Enhanced insolvency framework could shorten resolution and improve recovery rates. - QCB should monitor implementation closely and provide guidelines to ensure evenhandedness in bilateral bank-borrower discussions. - Supervisory diligence and provisioning: - Staff analysis suggests NPL ratios could have been slightly higher in 2021 without the loan moratorium. - Banking sector sizeable exposure to government-related entities (GREs) increases risks and could raise contingent sovereign liabilities. - The share of GRE loans in total bank loans is around 19 percent. - QCB should proactively monitor compliance with provisioning and capital requirements and require plans to deal with NPLs and restore capital buffers as needed. - Continue stress testing and information sharing among financial supervisors. - Foreign funding risks and regulatory adjustments: - Banks increasingly reliant on foreign funding for longer tenor and lower cost, leading to several banks with LTD ratios well above the 100 percent prudential limit and NSFR below required level, though complying with LCR prudential limit. - QCB adjusted reserve requirements in foreign currencies for non-resident deposits and the calculation of LCR and NSFR ratios using more conservative assumptions of outflow run-off rates, and modified LTD calculation to include banks’ borrowing with different maturities. - Strong public support mitigates risks but could increase contingent sovereign liabilities. - Recommended structural measures: - Time-bound plans and strict implementation to reduce exposure to external financing and align LTD and NSFR with prudential limits. - Deepen financial markets to increase domestic stable funding, promote term savings, widen borrowing and investment opportunities, and achieve greater financial inclusion. - Consider issuing long-term capital instruments to create a benchmark yield curve to facilitate saving and lending in domestic currency. - Fiscal prudence and less domestic borrowing by the public sector to alleviate the sovereign-bank nexus and avoid crowding out private credit. - Put in place an adequate bank resolution framework and financial safety nets, such as emergency liquidity assistance and deposit insurance scheme. - Consider an FSAP Update to strengthen these areas. - Authorities’ stance: - Authorities stressed need for a gradual exit to avoid disrupting the recovery and supported diligent banking supervision. - Progress cited: diversifying foreign investor base, lengthening maturity of foreign funding, adequate prudential measures, good quality of loans to GREs under current environment, and history of strong state support to banks. - Increase in banks’ foreign borrowing partly attributed to financing infrastructure investments in the run-up to the World Cup and expected to subside after the event. ### Financial integrity and fintech - Fintech developments: - Rising fintech activities since the pandemic; surge in e-commerce and online financial services. - QCB and Qatar Development Bank (QDB) had initial success with fintech incubator and accelerator programs, with potential to increase financial inclusion. - Issuance of regulations on e-payments, electronic know-your-customer (e-KYC and e-signature), and electronic insurance aggregation. - Continued efforts needed to balance opportunities and risks, including ML/TF risks. - AML/CFT framework: - New laws on combating ML/TF and terrorism and an implementing regulation were enacted in 2019. - Legal framework requires prompt implementation of targeted financial sanctions related to terrorism and proliferation financing. - QCB issued guidance and instructions to facilitate implementation and strengthened risk-based AML/CFT supervision. - In 2020, the Regulatory Authority for Charitable Activities (RACA) conducted a TF risk assessment on non-profit organizations. - Qatar will undergo the comprehensive AML/CFT mutual evaluation by the MENAFATF in July 2022. - Effective implementation of supervisory strategies and activities is critical to further strengthen Qatar’s AML/CFT regime. *International Monetary Fund — Qatar: 1qatea2022001 (excerpts).* ### 17. The authorities shared staff’s assessment on fintech and highlighted progress in ### 1qatea2022001 - 17. The authorities shared staff’s assessment on fintech and highlighted progress in ### Fintech and AML/CFT - The authorities shared staff’s assessment on fintech and highlighted progress in strengthening the AML/CFT framework. - The authorities viewed fintech as a strategic area to focus on and sought the IMF’s technical assistance in advancing the work. - On AML/CFT implementation, they emphasized the progress made, including efforts toward the upcoming MENAFATF mutual evaluation. - The QCB is in close cooperation with the relevant supervisory authorities to ensure full compliance with all the requirements. - Registered e-commerce websites grew by 416 in 2020. Banks launched mobile contactless payments, and digital banking transactions surged in 2020. ### Maintaining Fiscal Prudence and Embarking on a Growth-friendly Consolidation - Staff projections indicate a fiscal loosening in 2022, and the hydrocarbon windfalls increase the risk of fiscal procyclicality. - Additional expenditures allocated to support the World Cup are projected to widen the non-hydrocarbon primary deficit. - The 2022 budget envisages saving most of the revenue windfalls from favorable hydrocarbon prices, raising the overall fiscal surplus. - Staff supported saving hydrocarbon windfalls and urged the authorities to resist potential spending pressures, including raising food and energy subsidies, and avoid procyclical fiscal policy. - Qatar can protect the vulnerable population against rising food and energy prices with targeted transfers. - With broadly prudent fiscal management in recent years and continued discipline, Qatar is projected to be close to achieving intergenerational equity. - A gradual fiscal consolidation is needed over the medium term, which would also help strengthen the external position. Key fiscal projections and metrics - Central government debt projected to decline from 58 percent of GDP in 2021 to 36 percent of GDP in 2027. - 51 percent of the debt consolidation is projected to be driven by the primary fiscal balance. - Despite planned spending cuts, the Non-hydrocarbon Primary Balance (NHPB) is not expected to reach the Permanent Income Hypothesis (PIH) norm until around 2027. Recommended three-pillar, growth-friendly consolidation strategy - Diversifying revenues and accelerating VAT implementation: - Despite progress in economic diversification, Qatar remains highly dependent on hydrocarbon revenues. - Increasing non-hydrocarbon revenues would reduce sensitivity to oil price shocks and pave the way for a modern and broad-based tax system. - While the authorities decided not to introduce the VAT ahead of the World Cup, staff suggested introducing a broad-based VAT as soon as possible in 2023, allowing for sufficient consultation and preparation ahead of the implementation. - Assuming an introductory rate of 5 percent as per the GCC agreement, the VAT could bring additional revenues of 1.2-1.5 percent of GDP annually. - The one-time increase in inflation is likely to be small, especially if the introductory rate is 5 percent. - Staff welcomed Qatar’s acceptance of the international agreement on the minimum corporate income tax (CIT) and encouraged the authorities to accelerate implementation. - Enhancing current spending efficiency through subsidy reforms and public wage bill rationalization: - Qatar has lower energy subsidies than other GCC countries, but there is scope to reduce utility subsidies further while providing targeted support to those in need. - Reducing subsidies would generate fiscal savings, reduce energy consumption, support Qatar’s target in reducing GHG emissions, and promote efficient water usage. - Public wage bill rationalization, including tightening eligibility for benefits and reducing staffing by natural attrition, would support containment of the public wage bill and incentivize private sector employment. - Reorienting spending to boost productivity, diversification, and green investment: - Fiscal space can be deployed to support structural reforms and invest in health, education/training, and innovation. - Embrace digitalization and green infrastructure and create an enabling environment to attract more private investment. Scenario analysis and fiscal space estimates - Hydrocarbon demand in line with limiting global warming to 2-degrees Celsius or a 1 ppt lower return of the QIA’s financial investment is estimated to reduce permanent per capita income by around 34 and 19 percent, respectively, from the baseline level. - Reforms to implement the VAT, remove energy subsidies, and contain the wage bill are estimated to generate an additional fiscal space of 3½ percent of GDP over the medium term. - These reforms, together with the efficient spending of the fiscal space created, could increase annual potential non-hydrocarbon GDP growth by 1.2 ppts. ### Expenditures, Infrastructure, and Fiscal Frameworks - The approved 2022-24 budget framework aims for an expenditure-based fiscal consolidation: a flat public wage bill in real terms and a sizeable reduction in public investment (by 4.5 ppts of GDP over the medium term). - The reduction in public investment could weigh on non-hydrocarbon growth in a largely public sector-driven economy. - Developing a credible and operational medium-term fiscal framework (MTFF) is crucial: - The current 3-year budget framework with binding spending envelopes is a welcome first step to de-link spending from oil price volatility. - Next steps: full-fledged MTFF informed by credible macroeconomic projections, clear medium-term fiscal anchors, integration into the annual budget process, and a fiscal risk statement. - Accelerate transition toward a performance-based medium-term expenditure framework to improve allocative efficiency. - Consider extending into a 5-year fiscal framework with interim targets to map the 5-year National Development Plan into medium-term fiscal policy making. - Develop a comprehensive sovereign asset-liability management framework encompassing the general government, the QIA and the GREs. Transparency and governance - Publication of annual budget documents and quarterly budget performance reports for the central government is welcome and should be broadened to include the general government with more detailed information. - Improving transparency in public procurement and more transparency on the QIA’s operations and flows with the central government would strengthen governance and policy making. Authorities’ stance - Authorities underscored commitment to fiscal discipline and broadly shared staff’s view on the three pillars underpinning the medium- to long-term fiscal strategy. - Plans noted to limit increases in the public wage bill and current expenditures, while transferring surpluses to the QCB and the QIA. - After the World Cup, spending focus expected to shift towards developing a high-value, knowledge-based economy. - Authorities working to diversify sources of non-hydrocarbon revenues; near-term inflationary pressures could deter VAT introduction, but long-term goal is to raise sufficient non-hydrocarbon revenues to cover government operations. - Ongoing work on a long-term fiscal program and plan to extend the 3-year budget framework to 5 years. ### Strengthening the Monetary Policy Framework - The exchange rate peg continues to serve Qatar well; staff assesses the peg to remain a credible monetary anchor. - Staff supported increases in the QCB’s policy rates following the U.S. Federal Reserve’s moves and supported gradual reduction in the zero-interest repo facility to help reduce excess liquidity and strengthen monetary policy transmission. - To pave the way for a more independent monetary policy in the long run, staff advises to: - Strengthen liquidity management via improved liquidity forecasting and coordination among the fiscal authorities, the QIA and the QCB. - Deepen financial markets to enhance monetary transmission. - Contain balance sheet vulnerabilities from FX exposure. - Since March 2022, QCB increased the deposit rate by 50 bps, lending rate by 25 bps, and the repo rate by 75 bps. - Authorities agreed with staff’s assessment on the exchange rate regime and highlighted large central bank reserves and QIA assets that would reinforce the peg. - QCB noted work to establish liquidity forecasting in coordination with related government agencies to promote a proactive liquidity management framework. ### Advancing Structural Reforms to Reduce Economic Scarring and Promote Diversification - Structural reforms are critical to limit scarring and accelerate economic transformation; the pandemic could leave long-lasting scars on hospitality, transportation, retail and manufacturing sectors. - Staff projects that the medium-term real non-hydrocarbon GDP would remain 8 percent below the pre-pandemic projection. - Opportunities from digitalization and green investment could accelerate diversification and a greener recovery. - Reforms should focus on: (i) increasing productivity and inclusiveness; (ii) enhancing private sector competitiveness; and (iii) leveraging global trends for future growth. Labor market and human capital reforms - Enhance labor mobility and safety nets for expatriates: - Staff welcomed expatriate labor reforms introduced during the pandemic and called for full implementation to facilitate post-COVID labor reallocation. - In the context of rising food and energy prices, targeted transfers could complement existing food and housing allowances. - Providing an enabling environment, appropriate pension schemes and sufficient social safety nets for expatriate workers could help attract and retain skilled professionals. - Increase female labor participation: - Qatar’s female labor participation rate is among the lowest in the world, but female human capital is relatively high. - Regulatory reforms needed to ensure equal remuneration, protection in the workplace, paid parental leave and equal retirement age and pension. - Increasing female representation in decision making bodies, providing special entrepreneurship programs and allowing equal access to finance would be helpful. - Incentivize private sector employment: - 95 percent of the employed Qataris work for the public sector. - Post-school entrepreneurial education, public employment reforms and incentive schemes to encourage Qataris to join the private sector will facilitate the transition toward a private sector-led growth. - Reducing the persistent public-private wage gap will help reinvigorate employment in the private sector. - Reforms to attract and retain skilled expatriates would also help. - Reform education system and active labor market policies to improve human capital: - Education spending per student in Qatar is among the highest in the world and academic performance has improved but lags compared to economies in the same income group. - Staff advised reforms to enhance the efficiency of education spending. - Adapting curricula to evolving labor market needs and more focus on on-the-job training would help build a knowledge-based economy. *Source: 1qatea2022001 - 17. The authorities shared staff’s assessment on fintech and highlighted progress in* ### 29. Reforms should continue to improve the business environment and attract private ### 29. Reforms should continue to improve the business environment and attract private ### Business environment, SMEs, and PPPs - PPP projects need to be properly monitored and their risks managed. - Further measures to support SMEs through improved access to finance (e.g., by domestic financial deepening and enhancing financial infrastructure) and strengthened insolvency procedures would facilitate their post-COVID adjustment and recovery. - Personal savings and net worth remain the main source of finance for SMEs. It accounts for 76 percent in 2020, while bank loans and equity investment represent only 13 percent and 5 percent, respectively. ### Embracing emerging global trends: digitalization and greener growth - Accelerate digitalization. - The strong digital infrastructure in Qatar ensured the provision of financial, government, education, health, and e-commerce services during the pandemic. - The fintech sector has been growing rapidly since the announcement of the National Fintech Strategy and the launch of the Qatar FinTech Hub (QFTH) in 2019. - Efforts should continue in promoting digitalization; regulation and supervision of fintech need to advance further to balance risks and opportunities. - Qatar is among the leaders in adopting Information and Communication Technology according to the World Economic Forum's Global Competitiveness Report and received a high development Index by the UN E-government Survey. During the pandemic, Qatar developed new COVID-related digital platforms to facilitate case diagnosis and tracking, e-learning, teleworking, and e-shopping. Schools adopted a blended learning policy that combined online and in-person classes. 74 percent of Qatari companies have a remote work policy according to a Microsoft survey. - Foster greener growth (Annex VII). - Qatar’s ecosystem is highly vulnerable to climate change risks—climate stressors have already had a significant impact on water, temperature, and sea level. - The economy’s dependence on LNG—although relatively cleaner than other fossil fuels—makes it susceptible to global mitigation actions in the long term. - Qatar has adopted a number of climate mitigation and adaptation initiatives, and efforts should accelerate. - Gradually phasing out energy subsidies is critical in meeting Qatar’s mitigation pledge, which should be complemented by increasing green investment, including from private investors, enhancing interagency coordination, and upgrading regulatory framework. - Simulations in Annex VII show that gradually aligning natural gas and electricity prices with supply costs by 2030 and installing 800 MW of solar power in 2022 as planned could allow Qatar to meet its mitigation pledge. ### Labor market, inclusiveness, and private employment - The authorities underscored their commitment to structural reforms. - The removal of the Kafala system should help boost productivity and enhance competitiveness. - Efforts are ongoing to improve working conditions for women by offering flexible working hours and a welcoming workspace. - The authorities aim to increase private sector employment among nationals through better education and incentive measures. - The QDB highlighted progress in supporting the SMEs (e.g., access to finance and digitalization), including under the NGP. - The authorities highlighted that the newly-launched climate strategy will provide a robust policy framework to safeguard Qatar’s environment and noted their ongoing work to establish the environmental, social, and governance (ESG) framework. ### Macroeconomic statistics and data dissemination - Qatar publishes essential macroeconomic data through a National Summary Data Page (NSDP) as a General Data Dissemination System (GDDS) subscriber. - While data coverage is adequate for surveillance, further efforts are needed to improve coverage and granularity of central/general government operations, debt statistics, and the International Investment Position. - Such progress will also help Qatar to subscribe to the Special Data Dissemination Standard. - The authorities noted their progress in establishing a robust NSDP portal, improving data quality and publishing partial data on Qatar’s International Investment Position by the QCB. ### Staff appraisal: recovery, financial sector vigilance, and policy guidance - Qatar has managed the Covid-19 pandemic well and a robust recovery is underway. - The authorities’ strong health response and fast vaccination rollout have allowed Qatar to remain largely open during the pandemic, minimizing disruptions to economic activities. - The comprehensive economic support package has provided needed relief to hard-hit households and sectors and supported banking sector resilience. - Accelerated reform efforts during the pandemic will help facilitate Qatar’s economic transformation. - The recovery is gaining momentum and near-term risks appear broadly balanced. Medium- to long-term risks, however, are tilted to the downside, calling for continued policy prudence and strengthened efforts to advance the reform agenda. - Diligent banking supervision is critical during the gradual exit from pandemic support measures. - As the economy recovers, most pandemic support measures have ended by 2021Q3. The exit from remaining financial sector support measures is appropriately phased. - The QCB’s gradual reduction in the zero-interest repo facility is welcome, and the move toward more targeted support to distressed but viable borrowers is also a step in the right direction. - The QCB should request banks to promptly recognize NPLs and losses from loan restructuring, proactively monitor banks’ compliance with provision and capital requirements and require plans to address NPLs and restore capital buffers as needed. - An adequate bank resolution framework and enhanced insolvency regime should be in place to strengthen resilience and facilitate resource reallocation. - The banking sector’s large and increasing reliance on foreign liabilities poses risks—more forceful implementation of prudential regulations, domestic financial deepening and a reduction in sovereign-bank nexus could help alleviate the vulnerability. - Progress in developing the fintech regulatory framework is encouraging; efforts should continue to balance risks and opportunities. - Fiscal prudence in the near term and a growth-friendly adjustment over the medium term will support intergenerational equity and promote diversification. - Revenue windfalls from the current favorable hydrocarbon prices should be saved to avoid procyclicality and strengthen fiscal buffers. - The economic upswing provides an opportunity to embark on a growth-friendly medium-term fiscal consolidation, through diversifying non-hydrocarbon revenues, especially to accelerate the delayed VAT introduction, enhancing efficiency of current expenditure via subsidy and public employment reforms, and productive public investment to promote economic diversification. - A credible and operational MTFF, underpinned by enhanced fiscal transparency and governance, could support the implementation of the consolidation strategy. - The exchange rate peg remains a credible monetary anchor. - The peg has served Qatar well and will be further supported by fiscal consolidation and competitiveness-enhancing reforms. - Liquidity management can be strengthened through improved liquidity forecasting and coordination among the fiscal and monetary authorities. - Containing banks’ exposure to foreign liabilities and financial market deepening would help reduce vulnerabilities and enhance monetary transmission. - Structural reforms should be accelerated to promote a more inclusive, diversified and greener economy. - Labor market reforms should accelerate to boost productivity and inclusion, as well as to encourage more private sector employment—full implementation of recently introduced reforms for expatriate workers is a critical first step. - Upgrading the business environment could attract more private investment and improve competitiveness. - Leveraging global trends, such as digitalization and climate adaptation and mitigation, could generate new growth, alleviate Qatar’s vulnerability to climate risks and help smooth the eventual energy transition toward renewables. *International Monetary Fund — QATAR (excerpt).* ### 38. It is recommended that the next Article IV consultation take place on the standard ### It is recommended that the next Article IV consultation take place on the standard 12-month cycle. ### Real sector: developments and outlook - Economic recovery: "Economic recovery is gaining strength..." - Growth composition: - "Non‐hydrocarbon growth recovering as well." - "After moderating, the industrial production points to some recovery..." - "Supported by strong gross capital formation and private consumption." - Employment and wages: - "Employment remained significantly below pre‐pandemic level driven by expatriates’ departure; wages increased mildly." - Change of Employment and Wages From 2019Q4 to 2021Q3: (chart referenced; descriptive key points above). - Industrial production: - "Industrial production remained below pre‐Covid level as maintenances reduced hydrocarbon production in 2021." - Asset prices and sovereign risk: - "Sovereign Spread remains flat despite the uptick of EM overall risk premium." - "The stock market index has risen beyond pre‐COVID levels while the real estate index has recovered modestly." ### External sector: developments, balances, and reserves - Commodity and trade drivers: - "Oil and gas prices have continued rising in 2022..." - "... driving up exports faster than imports." - Services and transfers: - "Tourism is recovering, while remittances dropped." - External balances and flows: - "The current account surplus has returned thanks to a widening trade surplus, which is expected to continue." - "Resumption of other investment abroad has driven the financial account into a deficit in 2021." - Reserve adequacy and exchange rates: - "Central bank reserves remained broadly adequate and expected to rise further." - "Real and nominal effective exchange rates have been appreciating since 2021." - Selected external-account figures (from Table 2, projections included): - Current Account: 2018 16.7; 2019 4.3; 2020 -2.9; 2021 26.4; 2022 44.9; 2023 34.5; 2024 22.4; 2025 16.1; 2026 12.6; 2027 12.4 - Exports (billions of U.S. dollars): 2019 72.9; 2020 58.8; 2021 84.3; 2022 122.3; 2023 112.2; 2024 101.9; 2025 99.4; 2026 100.5; 2027 106.7 - Central bank reserves (billions of U.S. dollars, memorandum): 2018 30.5; 2019 39.7; 2020 40.9; 2021 42.2; 2022 70.7; 2023 82.9; 2024 92.2; 2025 101.4; 2026 110.1; 2027 104.4 - Current account balance (percent of GDP): 2019 2.4; 2020 -2.0; 2021 14.7; 2022 19.9; 2023 15.1; 2024 9.7; 2025 6.8; 2026 5.1; 2027 4.8 ### Fiscal sector: performance and projections - Aggregate outcomes: - "The fiscal balance turned positive in 2021..." - "Relative to the economy, public spending decreased." - "...as higher hydrocarbon prices boosted fiscal revenues." - "Gross public debt (relative to nominal GDP) declined from its 2020 peak." - Central government fiscal balance and revenues (selected rows, percent of GDP): - Revenue (percent of GDP): 2019 33.5; 2020 32.6; 2021 29.7; 2022 34.1; 2023 36.8; 2024 34.0; 2025 31.6; 2026 30.9; 2027 31.3 - Expenditure (percent of GDP): 2019 32.5; 2020 34.7; 2021 29.4; 2022 28.6; 2023 28.4; 2024 28.2; 2025 27.7; 2026 27.2; 2027 25.8 - Central government fiscal balance (percent of GDP): 2019 1.0; 2020 -2.1; 2021 0.3; 2022 5.4; 2023 8.5; 2024 5.8; 2025 4.0; 2026 3.7; 2027 5.4 - Debt metrics (percent of GDP, selected): - Central government debt: 2019 72.6; 2020 58.4; 2021 46.0; 2022 44.5; 2023 42.7; 2024 41.0; 2025 38.6; 2026 36.2; 2027 36.2 - Table 3b memorandum: Total debt (percent of GDP): 2018 52.2; 2019 62.2; 2020 72.6; 2021 58.4; 2022 46.0; 2023 44.5; 2024 42.7; 2025 41.0; 2026 38.6; 2027 36.2 - Non-hydrocarbon primary balances: - Non-hydrocarbon primary balance (percent of non-hydrocarbon GDP), Table 1: 2019 -37.0; 2020 -35.4; 2021 -34.6; 2022 -40.9; 2023 -37.1; 2024 -34.1; 2025 -31.9; 2026 -30.5; 2027 -28.5 - Table 3a (nominal QAR data) shows persistent negative nonhydrocarbon primary fiscal outcomes in levels and large gross operating balances driven by hydrocarbon investment income. ### Financial sector and monetary conditions - Financial stability signals: - "Sovereign Spread remains flat..." and broader recovery in asset prices. - Banking sector indicators (Table 5, selected, in percent): - Regulatory Tier 1 capital to risk-weighted assets: 2016 15.7; 2017 16.5; 2018 17.0; 2019 17.5; 2020 17.6; 2021 18.0 - Nonperforming loans to total loans: 2016 1.3; 2017 1.6; 2018 1.9; 2019 1.8; 2020 2.0; 2021 2.4 - Return on assets: 2016 1.7; 2017 1.5; 2018 1.6; 2019 1.6; 2020 1.4; 2021 1.4 - Liquid assets to total assets: 2016 29.6; 2017 28.2; 2018 29.1; 2019 30.2; 2020 28.1; 2021 28.2 - Monetary aggregates and credit (Table 4, selected): - Broad Money (QAR, billions): 2018 564.0; 2019 578.0; 2020 599.9; 2021 608.5; 2022 711.6; 2023 769.7; 2024 828.6; 2025 887.8; 2026 941.3; 2027 984.1 - Domestic credit to private sector (QAR, billions): 2018 541.2; 2019 646.7; 2020 700.4; 2021 766.8; 2022 823.2; 2023 894.4; 2024 962.9; 2025 1031.6; 2026 1093.9; 2027 1143.6 - Broad money growth (M2): 2019 2.5; 2020 3.8; 2021 1.4; 2022 16.9; 2023 8.2; 2024 7.7; 2025 7.1; 2026 6.0; 2027 4.6 ### Key macroeconomic projections and baseline indicators (select highlights from Tables 1–3) - Real GDP (2018 prices, percent change): - 2019 0.7; 2020 -3.6; 2021 1.5; 2022 3.4; 2023 2.5; 2024 1.7; 2025 2.8; 2026 2.7; 2027 3.8 - Hydrocarbon and nonhydrocarbon contributions (Table 1): - Nominal GDP (billions of Qatari Riyals): 2019 642.0; 2020 525.7; 2021 653.6; 2022 821.6; 2023 831.2; 2024 839.8; 2025 866.4; 2026 899.7; 2027 935.1 - Nominal hydrocarbon GDP (billions of Qatari Riyals): 2019 229.3; 2020 152.3; 2021 240.8; 2022 376.1; 2023 344.8; 2024 316.2; 2025 305.3; 2026 304.8; 2027 313.2 - Nominal nonhydrocarbon GDP (billions of Qatari Riyals): 2019 412.7; 2020 373.3; 2021 412.9; 2022 445.5; 2023 486.4; 2024 523.7; 2025 561.1; 2026 594.9; 2027 622.0 - Inflation and prices: - CPI inflation (average): 2019 -0.7; 2020 -2.7; 2021 2.3; 2022 3.5; 2023 3.2; 2024 2.1; 2025 1.5; 2026 1.5; 2027 1.5 - Hydrocarbon price and output (Table 1, selected): - Brent crude oil price (U.S. dollars per barrel): 2019 64.04; 2020 42.37; 2021 70.41; 2022 110.89; 2023 96.18; 2024 87.28; 2025 71.47; 2026 77.67; 2027 74.9 - Crude oil production (thousands of barrels per day): 2019 579.2; 2020 554.0; 2021 550.0; 2022 550.0; 2023 550.0; 2024 550.0; 2025 550.0; 2026 550.0; 2027 550.0 - Natural Gas exports (millions of tons per year): 2019 92.3; 2020 91.5; 2021 90.7; 2022 91.4; 2023 91.8; 2024 92.1; 2025 100.1; 2026 108.1; 2027 124.1 - External debt and reserves (Table 1, selected): - External debt (percent of GDP): 2019 187.0; 2020 161.5; 2021 131.5; 2022 133.3; 2023 134.7; 2024 134.1; 2025 131.7; 2026 128.5 - Central Bank's official reserves (billions of U.S. dollars): 2019 28.3; 2020 23.5; 2021 31.3; 2022 36.3; 2023 39.9; 2024 42.6; 2025 44.6; 2026 44.6; 2027 40.7 ### Policy recommendation (explicit) - "It is recommended that the next Article IV consultation take place on the standard 12-month cycle." *Source: IMF staff report chapter and statistical tables (selected figures and tables as provided).* ### Annex I. Implementation of the 2019 Article IV Recommendations ### Annex I. Implementation of the 2019 Article IV Recommendations ### Fiscal Policy: implementation status and key outcomes - Limit current spending, including by containing public wage bill and reducing utility subsidies. - The pandemic derailed efforts to contain current spending, which increased by 1.6 ppts of GDP between 2018 and 2021. - Public wage bill decreased by 0.6 ppts of GDP in 2019-21. - In response to the pandemic, allowances eligibility was tightened, and the authorities supported utility payment. - Reduce public investment to a more sustainable level. - Public investment declined to 11 percent of GDP in 2021 and is projected to decline further to 9 percent of GDP by 2023. - Introduce VAT and increase non-hydrocarbon revenues. - VAT was not introduced. - Non-hydrocarbon (NHC) revenues increased by 1.8 percent of NHC GDP from 2018 to 2021. - Cost recovery of utility companies; a 10-year plan to achieve full market-price commercialization. - The authorities are working on reducing water and electricity consumption and increasing efficiency of their use. - Strengthen monitoring of public expenditures and improve the efficiency of public investment. - The central government is preparing a long-term fiscal plan for internal use (Turn the MT budget framework into a performance-based MT expenditure framework). - Enhance fiscal reporting. Publish government’s transfers in and out of the QIA. - Quarterly fiscal reports and a more detailed budget were published in 2021, but the 2022 budget publication was more limited in scope. - Transfers between the QIA and public institutions are not made public. - Introduce a comprehensive asset/liability management framework to guide borrowing and investment decisions. - Authorities focused efforts on improving central government debt management. - Increase coordination and information sharing between the central government, QCB, and QIA. - The Supreme Committee for Crisis Management (SCCM) enhanced inter-agency coordination to respond to the Covid-19 pandemic. ### Monetary and Financial Sector Policy: implementation status and key outcomes - Enhance QCB’s liquidity management operations. - Liquidity operations were enhanced during the pandemic. - Improve macro-prudential regulations, enhance real estate statistics, and strengthen consolidated supervision. - Authorities run banking sector stress tests, publish their results in the financial stability review, and publish the real estate index. - Deepen domestic capital markets, support financial inclusion, and foster financial innovation. - The authorities continued issuing T-bills and introduced zero-interest repo facility as part of the pandemic response to support banking sector liquidity. - Qatar launched a national fintech hub in 2021. - Implement targeted financial sanctions and manage risks posed by non-profit organizations; develop the legal framework to combat terrorist financing. - Law No. 20/2019 on Combating ML and TF enacted in June 2019; Executive Regulation issued in December 2020. - Law No. 27/2019 on Combatting Terrorism enacted in December 2019. - Implementing regulations on targeted financial sanctions (TFS) for TF and proliferation financing have been issued. - QCB issued AML/CFT Instructions for financial institutions with revision made in May 2020, as well as several guidance papers. - The Regulatory Authority for Charitable Activities (RACA) conducted a risk assessment on TF of the NPO sector in 2020. ### Structural Reforms and Statistics: implementation status and key outcomes - Improve the business environment. Allow majority foreign ownership of companies. - New legislation on PPPs and FDI approved in 2020-21. - Limits on foreign ownership of public companies was removed in 2021. - Establish a minimum wage under the ILO framework and adopt a new law to protect expatriate domestic help. - A minimum wage has been in place from 2021 with complements for housing and food. - Enact laws that mandate equal remuneration and discourage gender-based discrimination. - Limited progress. - Enhance macroeconomic statistics. - Quarterly GDP has been published since 2013. ### External Sector Assessment (Annex II): 2021 position and projections - Overall assessment - Staff assesses the 2021 external position to be stronger than the level implied by medium-term fundamentals and desirable policies. - With domestic demand recovering and hydrocarbon prices declining over the medium term, Qatar’s saving of exhaustible hydrocarbon wealth is projected to fall below the estimated level that would achieve intergenerational equity, implying a need for credible and growth-friendly fiscal consolidation and structural reforms. - Current account (CA) 2021 and projections - The current account moved into a surplus of 14.7 percent of GDP in 2021 as hydrocarbon exports increased on the back of higher oil prices. - The CA balance is projected to reach a surplus of 19.9 percent of GDP in 2022 driven by higher hydrocarbon exports, and strengthen further over the medium-term as the LNG production expansion materializes. - Capital and financial account 2021 - The capital and financial account deteriorated in 2021. - Net portfolio outflows totaled 6.8 percent of GDP (resumption of portfolio investments abroad 5.8 percent of GDP and reversal of inward portfolio flows 1percent of GDP). - Increasing external assets holding by commercial banks and QIA totaled 15 percent of GDP. - Resulted in a deficit of 13.1 percent of GDP against a surplus of 3.3 percent of GDP in 2020. - QCB foreign reserves and asset buffers (end-2021) - QCB foreign reserves reached $42 billion (23.5 percent of GDP, 6.6 months of prospective imports, 25 percent of broad money, and 145 percent of short-term external debt) at end-2021. - Equivalent to an estimated 49 percent of the IMF’s reserve adequacy metric (ARA) against 51 percent in 2020. - QIA foreign assets estimated to have reached 213 percent of GDP at end-2021. - Together they account for 489 percent of the ARA metric. - Exchange rate and REER - The Riyal has been pegged to the U.S. dollar at 3.64 since July 2001. - REER appreciated gradually in 2021: 5.4 percent in December 2021, y/y, but on average REER was still more depreciated in 2021 than in 2020 by 2.5 percent. - Given heavy reliance on hydrocarbon exports and elastic supply of expatriate labor, the impact of REER depreciation on competitiveness remains limited. - External position diagnostics - EBA-Lite regression model suggests a negative CA gap (-8 percent of GDP). - REER regression model suggests a slight undervaluation of 0.26 percent. - Consumption-based rule model suggests staff-weighted positive CA gaps: Consumption Allocation Rules imply a positive CA gap of 2.9 percent of GDP (Annuity constant in real terms) and 7.3 percent of GDP (Annuity constant in real per capita terms). - Staff gives most weight to the constant real annuity rule and assesses the external position as “stronger than the level implied by fundamentals and desirable policies”. - Over the medium term, with oil prices returning to long-term levels and domestic demand recovery, CA is projected to fall below the level needed for intergenerational equity. ### External Debt Sustainability (Annex III): status, projections, and stress tests - Gross external debt levels and projection - Gross external debt declined from 187 percent of GDP at end-2020 to 161.5 percent of GDP at end-2021. - Public debt accounts for 51.8 percent of GDP at end-2021. - Gross external debt projected to fall to nearly 128.5 percent of GDP in 2027. - Gross external debt has increased by 104 percent of GDP since 2013 (cumulative change since 2013 as stated). - External assets buffer - QIA and banking sector external assets estimated at 213 percent of GDP and 41 percent of GDP in 2021, respectively. - Such sizable assets provide a buffer and imply a large positive net external position. - Stress test impacts (estimated changes in external debt by 2027 relative to baseline) - Interest rate shock: increases average nominal external interest rate by 36 basis points over 2022–27 on average; would increase external debt by 2.8 percent of GDP by 2027. - Negative growth shock: lowers real GDP growth by 1.5 percentage points on average over 2022–27; would raise external debt by about 13.2 percent of GDP by 2027. - Negative non-interest current account shock: worsens the current account by 6.6 percentage points of GDP on average over 2022–27; would increase external debt by about 38.8 percent of GDP by 2027. - Real depreciation shock: one-time nominal depreciation of 30 percent in 2023; would raise external debt by about 35.2 percent of GDP by 2027. - Table 1 highlights (selected rows, percent of GDP) - Baseline: External debt 2017–2027: 103.2; 108.1; 137.6; 187.0; 161.5; 131.5; 133.3; 134.7; 134.1; 131.7; 128.5. - Change in external debt (2017–2027): -24.0; 4.9; 29.4; 49.5; -25.5; -30.0; 1.8; 1.4; -0.6; -2.3; -3.3. - Identified external debt-creating flows (2017–2027): -10.9; -18.5; 6.0; 36.0; -50.6; -21.9; -15.7; -9.3; -7.6; -5.7; -6.7. - Current account deficit, excluding interest payments (2017–2027): -5.5; -10.5; -3.6; 1.6; -15.6; -21.1; -17.2; -12.2; -10.0; -8.4; -8.1. - Automatic debt dynamics (2017–2027): -5.9; -11.1; 5.4; 30.8; -35.8; -3.2; -1.2; 0.3; -0.5; -0.2; -1.6. - External debt-to-exports ratio (in percent) (2017–2027): 195.1; 193.3; 263.6; 380.8; 274.8; 203.6; 227.8; 251.8; 259.5; 260.0; 249.5. - Gross external financing need (in billions of US dollars) (2017–2027): 18.1; 4.9; 21.2; 34.2; 7.1; -9.4; 1.4; 14.4; 20.9; 25.3; 26.1. - Gross external financing need (in percent of GDP) (2017–2027): 11.2; 2.7; 12.0; 23.7; 3.9; -4.2; 0.6; 6.3; 8.8; 10.3; 10.2. - Key macroeconomic assumptions underlying the baseline (selected) - Nominal GDP (US dollars, 2017–2027): 161.1; 183.3; 176.4; 144.4; 179.6; 225.7; 228.4; 230.7; 238.0; 247.2; 256.9. - Real GDP growth (in percent, 2017–2027): -1.5; 1.2; 0.7; -3.6; 1.5; 2.2; 3.1; 3.4; 2.5; 1.7; 2.8. - GDP deflator in US dollars (change in percent, 2017–2027): 7.8; 12.4; -4.5; -15.1; 22.5; 2.0; 10.8; 21.5; -1.3; -0.7; 0.3. - Nominal external interest rate (in percent, 2017–2027): 1.3; 1.6; 1.0; 0.2; 0.6; 1.3; 0.7; 0.9; 1.6; 1.9; 2.4. - Growth of exports (US dollar terms, in percent, 2017–2027): 17.5; 20.4; -10.3; -22.9; 48.8; 1.3; 25.1; 38.1; -8.4; -7.6; -0.4. - Growth of imports (US dollar terms, in percent, 2017–2027): -2.0; 5.8; 1.5; -11.5; 3.6; 3.8; 10.0; 22.0; 2.0; 6.2; 6.7. - Current account balance, excluding interest payments (percent of GDP, 2017–2027): 5.5; 10.5; 3.6; -1.6; 15.6; 13.0; 13.2; 21.1; 17.2; 12.2; 10.0. - Scenario and bound-test notes - Standard stress-test results show the strongest impact from an adverse current account shock. - Combined and historical shock scenarios illustrated in bound tests highlight sensitivity of external debt path to CA, growth, interest rate, and exchange rate shocks. *Source: Annex I. Implementation of the 2019 Article IV Recommendations (QATAR), INTERNATIONAL MONETARY FUND.* ### Annex IV. Public Sector Debt Sustainability Analysis ### Annex IV. Public Sector Debt Sustainability Analysis ### Baseline debt dynamics and composition - Gross Nominal Public Debt and Public Gross Financing Needs are presented as projections through 2027 (figures). - Composition of public debt (by maturity and by currency) shown historically and projected through 2027, distinguishing medium and long-term vs short-term, and local currency-denominated vs foreign currency-denominated debt. - Underlying baseline macro and fiscal assumptions (in percent): - Real GDP growth: 3.4 (2022), 2.5 (2023), 1.7 (2024), 2.8 (2025), 2.7 (2026), 3.8 (2027) - Inflation: 2.1 (2022), 1.5 (2023), -1.3 (2024), -0.7 (2025), 0.3 (2026), 1.1 (2027), 0.1 (note: inflation line repeated across scenarios) - Primary Balance: 6.9 (2022), 9.9 (2023), 7.2 (2024), 5.2 (2025), 5.0 (2026), 6.6 (2027) - Effective interest rate: 3.3 (2022), 3.1 (2023), 3.1 (2024), 3.1 (2025), 3.1 (2026), 3.1 (2027) - Historical scenario assumptions (in percent): - Real GDP growth: 3.4 (2022), 2.2 (2023), 2.2 (2024), 2.2 (2025), 2.2 (2026), 2.2 (2027) - Inflation and Primary Balance series shown with values matching baseline where reported: Inflation 2.1, 1.5, -1.3, -0.7, 0.3, 1.1, 0.1; Primary Balance 6.9, 6.1, 6.1, 6.1, 6.1, 6.1 - Effective interest rate: 3.3 (2022), 2.7 (2023), 2.7 (2024), 2.7 (2025), 2.7 (2026), 2.6 (2027) - Constant Primary Balance scenario assumptions (in percent): - Real GDP growth: 3.4 (2022), 2.5 (2023), 1.7 (2024), 2.8 (2025), 2.7 (2026), 3.8 (2027) - Inflation: same as above - Primary Balance: 6.9 (each year 2022–2027) - Effective interest rate: 3.3 (2022), 2.7 (2023), 2.7 (2024), 2.7 (2025), 2.7 (2026), 2.6 (2027) ### Risk Assessment Matrix — Key risks, impacts, and policy responses (Annex V) - Risk metrics and staff subjective likelihood categories defined as: low (<10 percent), medium (10–30 percent), high (30–50 percent). - Global resurgence of the Covid-19 pandemic (Relative Likelihood: Medium / High) - Expected impact: - Affects Qatar via global oil market demand and domestic economy; lower (higher) oil prices deteriorate (improve) external and fiscal balances and private sector activity. - New containment measures would decrease growth via reduced consumption and investment; contact-intensive services demand subdued; expatriate employment likely declining. World Cup participation could be reduced, weighing on near-term growth. - Policy responses: - Continue large-scale testing, accelerated vaccination and booster campaign; use existing buffers for short-term support; encourage resource reallocation via accelerated structural reforms to diversify. - De-anchoring of inflation expectations in the U.S. leading to rising core yields and risk premia (Relative Likelihood: Medium / Medium) - Expected impact: - Front-loaded tightening of financial conditions and higher risk premia; tighter financial conditions could increase debt service and financing risks and pose a liquidity risk for Qatari banks given growing reliance on foreign funding. - Policy responses: - Qatar's Central Bank could provide liquidity support to banks and proactively monitor/ manage financial stability risks. Large financial buffers will help mitigate adverse impacts. - Rising commodity prices amid bouts of volatility (Relative Likelihood: Medium / High) - Expected impact: - Qatar’s planned LNG expansion increases sensitivity to energy price swings. Higher-than-projected oil prices could strengthen fiscal and external positions and boost non-hydrocarbon growth but raise pressures to increase public spending. Lower oil prices would deteriorate external and fiscal balances and hurt growth. - Policy responses: - Implement a transparent medium-term fiscal and debt management framework that delinks public spending from oil price volatility; assess fiscal risks; support spending efficacy; enhance fiscal credibility; increase non-hydrocarbon revenues; accelerate structural reforms for diversification. - Intensified geopolitical tensions and security risks (Relative Likelihood: High / Medium) - Expected impact: - Depends on the event; higher global oil prices could be positive for Qatar but may be offset by weaker investor confidence and disruptions to supply, trade, and capital flows. The Al-Ula reconciliation declaration has reduced political tensions in the GCC. - Policy responses: - Policy response depends on nature of shock. Qatar has fiscal space to respond to negative shocks, with the central bank providing liquidity if needed. ### A Fiscal Strategy to Promote Intergenerational Equity and Diversification (Annex VI) — Objectives and framework - Dual objectives: - Achieve intergenerational equity (sustaining wealth from exhaustible hydrocarbon revenue and QIA returns). - Promote economic diversification and robust non-hydrocarbon growth via productive fiscal use. - Key fiscal policy questions: - How much resource revenue and QIA returns to save? - How to use fiscal resources productively to promote diversification and sustainable growth? - Recommended fiscal approach: - Growth-friendly medium-term fiscal consolidation to align non-hydrocarbon primary balance (NHPB) with levels consistent with intergenerational equity. - Use a NHPB anchor to delink spending from hydrocarbon price volatility and to promote sustainable, equitable spending of resource wealth. ### Scenarios to assess intergenerational equity — Baseline and downside scenarios (Table 1) - Scenario variables and values: - Rate of return on QIA: Baseline 4% real; Downside oil/gas prices 4% real; Downside QIA returns 3% real; Delayed fiscal discipline 4% real. - Long-term oil price: Baseline USD 65 / BBL; Downside oil/gas prices USD 50 / BBL; Downside QIA returns USD 65 / BBL; Delayed fiscal discipline USD 65 / BBL. - Long-term gas price: Baseline USD 440 / ton; Downside oil/gas prices USD 332 / ton; Downside QIA returns USD 440 / ton; Delayed fiscal discipline USD 440 / ton. - Long-term expenditure growth: Baseline 1% in real terms; Downside oil/gas prices 2.5% in real terms; Downside QIA returns 1% in real terms; Delayed fiscal discipline 1% in real terms. - Long-term non-oil/gas GDP growth: 2% real across scenarios. - Non-oil revenue (% non-oil GDP): 10% across scenarios. - Notes: - Long-run prices are not impacted by current price upswing; IEA Sustainable Development Scenario values derived from IEA WEO 2021. - A 1 percentage point lower real return on QIA assets reduces permanent per capita income by 19 percent (due to compounded interest). - Hydrocarbon prices aligned with the IEA scenario could lower permanent per capita income by 34 percent. ### Simulation findings on intergenerational equity and risks - Under baseline assumptions, fiscal policy aligns with intergenerational equity by 2027; permanent real per capita income equals QR 59,000 in 2027. - External downside scenarios delay achieving NHPB consistent with intergenerational equity: - With lower hydrocarbon prices (IEA scenario), NHPB consistent with intergenerational equity is not met until 2050. - With lower financial returns (1 percentage point lower), NHPB consistent with intergenerational equity is not met until 2043. - Domestic policy risk — delayed fiscal discipline: - If spending grows at 2.5 percent in real terms until 2045 (vs gradual reduction under baseline), a much sharper and growth-damaging consolidation would be required later. - Under this delayed adjustment scenario, permanent income per capita would be more than 20 percent lower than under the baseline. - Hydrocarbon revenue would be insufficient to fully finance the non-hydrocarbon deficit by 2035, requiring other financing sources (QIA assets and/or increased public debt). ### The impact of diversification and specific fiscal reforms - Objective: Align NHPB with level consistent with intergenerational equity by 2027 while supporting diversification and growth. - Reforms analyzed: - Introduce the Value-Added Tax (VAT) in 2023. - Gradually remove energy subsidies by 2030. - Contain the wage bill from now on. - Estimated fiscal and growth impacts (Table 2): - Value-Added Tax introduction: - Fiscal Balance Impact: 1.2% to 1.5% of GDP - Long-term Growth Impact: 0.5% - Energy subsidies removal: - Fiscal Balance Impact: 2.2% of GDP - Long-term Growth Impact: 0.5% - Note: Revenue gain less than current subsidy estimate because natural gas consumption-to-GDP falls due to improving energy efficiency and diversification by 2030. - Wage bill containment: - Fiscal Balance Impact: 0.5% of GDP - Long-term Growth Impact: 0.2% - Note: Wage bill remains constant in real terms. - Cumulative Impact: - Fiscal Balance Impact: 3.5% to 3.8% of GDP - Long-term Growth Impact: 1.2% - Additional findings: - The transitory negative growth impact of introducing the VAT is expected to be limited given the current cyclical upswing and can be mitigated by recycling revenue for productive use. - Savings from removing energy subsidies can be reallocated to more productive spending. - Under the reform scenario, 2040 non-hydrocarbon GDP per capita in constant prices is estimated to be QR 35,000 higher than under the baseline. - By comparison, downside external shock scenarios without reforms reduce permanent income by QR 15,000 to QR 19,000. - Diversification facilitated by efficient fiscal policy can therefore help protect against external risks and support intergenerational equity. ### Institutional recommendations - Strengthen fiscal institutions and processes with the Ministry of Finance in the lead. - Formalize responsibilities and processes through legislation to operationalize fiscal anchors and improve spending efficiency. - Adopt a clear plan to gradually align medium-term spending aggregates with levels consistent with intergenerational equity (preferably using an NHPB target). - Implement a performance-based expenditure framework that regularly prioritizes spending to improve allocative efficiency. - Increase transparency of fiscal accounts and QIA operations to strengthen public accountability and policy buy-in. *Source: IMF staff.* ### Annex VII. Climate Risks and Actions in Qatar ### Annex VII. Climate Risks and Actions in Qatar ### Background and Climate Risks - Geography and demographics - Peninsula in the Arabian Gulf; desert accounts for 82 percent of the total surface. - Majority of the population resides on the coast. - Climatic conditions - Semi- to hyper-aridity; rainfall is unpredictable, averaging between 50 and 80 mm/year. - High temperatures ranging from 20° C to 50° C. - Average daily household water consumption amounts to 430 liters. - Dependence on desalination of seawater as the main water source in addition to groundwater. - Water stress and sources - Main sources of freshwater: desalination (61 percent), groundwater (24 percent) and reuse of treated sewage effluent (15 percent). - Qatar has one of the highest domestic water consumption rates in the world; overall water use is more efficient than other GCC countries due to productive industrial water use. - Temperature trends and impacts - Temperature has increased by 1.5 °C on average since 2000. - Urban heat island effects exacerbate impacts in built-up, inland, and higher population density areas. - Consequences include human health complications, biodiversity impacts, increased GHG emissions from higher power demand, rising underground water salinity, falling freshwater levels, and reduced efficiency of desalination plants. - Sea level rise - Sea level increasing at approximately 3 mm per year at Mina Sulman and 1.5 mm/year at Doha. - Qatar is the most vulnerable country in the MENA region to sea level rise and associated flooding. - A 1-meter rise in sea level (predicted for 2100) would affect about 3 percent of its area; a 3-meter rise would affect 8 percent (UNDP, 2010). - Flooding risks threaten critical infrastructure, emergency and health services, coastlines, marine life, land and freshwater levels. - Economic dependence on hydrocarbons and GHG trends - Hydrocarbon resources (dominated by LNG) account for around 80 percent of total budget revenue, 85 percent of total exports and 40 percent of the GDP. - Carbon dioxide and methane emissions have increased by more than 10 and 4 times since 2010, respectively. - Per capita emissions have been declining since 2005 but remain among the highest in the world. - Electricity, transportation and heat sectors account for 67 percent of total Qatar GHG emissions. - If no action is taken, GHG emissions would increase by 33 percent by 2030 as a result of increased global demand for LNG, rising population, expansion of LNG capacities in Qatar, power generation, water desalination and transportation. ### Energy Subsidies and Price Gaps - Explicit and implicit energy subsidies are estimated at 3.7 and 6.4 percent of GDP, respectively. - Explicit subsidies have fallen since 2016 due to removal of explicit subsidies for gasoline and diesel. - Natural gas makes up around 85 percent of explicit subsidies due to its 90 percent share of primary energy use and retail price far below estimated supply cost. - Natural gas retail price: USD 0.50 per GJ compared to an estimated supply cost of USD 2.7. - Undercosting of electricity is estimated to equal 0.9 percent of GDP in 2021. - Implicit subsidies are larger than explicit subsidies and mostly come from natural gas consumption. ### Climate Actions and Progress - National strategies and targets - National Environment and Climate Change Strategy (NECCS) launched. - Climate Change Action Plan (CCAP) established to implement NECCS goals, including reducing GHG emissions by 25 percent by 2030 (particularly in oil and gas, electricity and water, transportation and construction sectors), establishing 30 air quality monitoring stations by 2023, and increasing the number of biosphere reserves. - CCAP identifies 36 mitigation measures and over 300 adaptation measures across sectors such as healthcare, biodiversity, water management and infrastructure. - Sectoral actions - Decarbonization and renewable energy - Commitment to organize the first carbon-neutral FIFA World Cup in 2022 using solar-powered stadiums and water- and energy-saving cooling and lighting technologies. - Region’s largest carbon storage plant developed in 2019 to capture over 5 million tons of carbon per year from Qatar’s LNG industry. - First 800 MW solar power plant introduced; goal of installing 10 gigawatts (GW) of solar power capacity and producing 20 percent of electricity from solar energy by 2030. - Development of integrated electric transport system (Doha Metro and Lusail Tram) to help reduce transport emissions. - Electricity and water consumption rationalization - KAHRAMAA initiative to reduce water and electricity consumption by 5 percent in the residential sector by end-2022. - Other measures include district cooling, energy labeling for electronic devices, and upgrading sewage treatment plants. - Green infrastructure - Adoption of Global Sustainability Assessment System (GSAS) standards to certify and rate green buildings and infrastructure projects (Qatar integrated rail project, expressway program, roads and drainage program, sustainable residential complexes, parking bays and hotels). - Biodiversity - Initiative to plant 1 million trees before the FIFA World Cup in 2022 and 10 million trees by 2030. - Restoration of marine habitats (growing mangrove trees) and planting indigenous trees in urban areas to increase carbon sequestration potential. - Education, Research and Development - Qatar Foundation established Qatar Environment and Energy Research Institute (QEERI) to assist Qatar in addressing energy and water security challenges through research, innovation and technology development. ### Policy Recommendations - Further actions and persistent challenges - Enhance interagency coordination - Many infrastructure projects are located near low-lying coastline, potentially impeding adaptation and mitigation measures for sea level rise; coordinated actions among responsible entities could mitigate flooding risks and reduce potential costs. - Enhance green energy auctioning design - Leverage experience from the successful 800 MW tender in 2020 to develop a long-term solar power competitive auctioning strategy and integrate it into broader electricity market plans. - A credible long-term strategy would provide stakeholders with increased certainty and impetus to enter the market. - Upgrade regulatory frameworks and strengthen governance - Further actions to upgrade regulatory framework for green financing and renewable energy are warranted. - Higher institutional quality should help embrace energy transition and boost diversification. - Governance-related measures should be incorporated in climate investment programs to ensure transparency, accountability and integrity. - Remove explicit energy subsidies to meet emissions target - Removing explicit energy subsidies could be a cost-effective way to meet Qatar’s emissions reduction goal of 25 percent below business-as-usual levels by 2030. - Assuming no additional policies after 2019, emissions are estimated to increase from 174 million ton of CO2 equivalent in 2019 to 207 *Source: Annex VII. Climate Risks and Actions in Qatar (IMF).* ### 2030. S ### 1qatea2022001 - 2030. S ### Emissions projections and mitigation pathway - Simulations show that gradually aligning natural gas and electricity prices with supply costs over the next eight years and installing 800 MW of solar power in 2022 could allow Qatar to meet its mitigation pledge, largely due to falling natural gas use in industry and power generation. - The simulation includes the additional emissions from the North Field LNG expansion project. ### Public health and fiscal benefits of subsidy removal - Removing natural gas and electricity subsidies reduces natural gas consumption and associated nitric oxide (NOx) emissions, which form small particulates that cause heart disease and other adverse health outcomes. - Estimated lives saved from reduced natural gas consumption: around 200 lives by 2030. - Estimated fiscal savings from subsidy removal: roughly 2 percent of GDP annually by 2030, supporting fiscal consolidation efforts. - Note on mechanism: The exact mechanism through which industrial and power generation users of natural gas receive subsidized natural gas prices is not known but it ultimately provides a fiscal benefit since the main natural gas provider is owned by the government. ### Economic growth impacts of energy-pricing reform - Energy pricing reform can support growth if fiscal savings are used productively. - Expected dynamics: - Short-term: A small, negative impact may occur as the economy adjusts to higher energy prices. - Medium-term: Reform is expected to be growth positive if the fiscal savings from subsidy removal are spent efficiently, as firms and households increase energy efficiency, renewable energy investment increases (solar power is more cost-competitive after reform), and productive spending boosts human and physical capital. - Policy recommendations: - Authorities could consider measures to support impacted industries and vulnerable households. - Phasing out subsidies over several years is recommended; the economic costs of immediate subsidy removal (rather than phasing out subsidies over several years) would be higher and is recommended against. ### Fiscal, statistical, and data context (selected points relevant to policy analysis) - Qatar has a conventional pegged exchange rate arrangement: QR 3.64 = US$1.00 since July 2001. - Data provision has shortcomings but is broadly adequate for surveillance; areas needing improvement include fiscal statistics, international investment position, and external debt statistics. - Government Finance Statistics: Authorities are implementing the Government Financial Management Information System (GFMIS) to enable compilation of accrual fiscal accounts according to GFSM 2001 guidelines; fiscal coverage should be broadened to cover the general government and Qatar Investment Authority. - External Sector Statistics: QCB reports quarterly balance of payments data following BPM5; more work is required to ensure comprehensive coverage and Qatar does not participate in the Coordinated Direct Investment Survey. *Prepared by Middle East and Central Asia Department (Informational annex to STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION)* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1qatea2022001.pdf_