## _cr0805

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### Executive Summary — background and recent developments
- Qatar: population 0.8 million; around 14 percent of the world’s natural gas proven reserves.
- Growth drivers (2006–07): LNG production, construction, financial services; Real GDP growth about 10 percent in 2006 and 14.2 percent in 2007.
- Inflation: reached 12 percent in 2006 and annualized 13 percent by mid-2007; as of June 2007 annualized inflation estimated at 13 percent; CPI period average: 11.8 (2006), 12.0 (2007).
- Fiscal outcomes FY2006/07: budget revenue 42 percent of GDP; overall fiscal surplus rose from 8.6 percent to 9 percent of GDP in FY2006/07 (staff estimates and table detail below).
- Current account: surplus about 31 percent of GDP in 2006; projected 33 percent of GDP in 2007 (staff) and revised 35 percent of GDP (statement revisions).
- External assets and reserves: QCB gross reserves (excluding government external assets) increased by about $0.8 billion in 2006 to $5.4 billion (2.4 months of next year’s imports); QCB gross reserves projected to $6.5 billion by year’s end (QCB projection increase $1.1 billion).
- Credit and monetary aggregates: broad money growth jumped to about 40 percent a year in 2005–06; credit to private sector annualized growth surged to 60 percent as of end-June 2007; estimated 50 percent in 2007.

### Hydrocarbon endowment, investment plans, and production projections
- Hydrocarbon endowment: Qatar holds 14 percent of world gas reserves; third largest natural gas reserves after Russia and Iran.
- State-owned Qatar Petroleum (QP) and subsidiaries have firm investment plans; total investments of over $80 billion in the gas sector to triple LNG exports over next five years.
- Selected expected investment projects (2007–12) — totals (U.S. $ bln) and selected items:
  - Total cost (Gas): 82.5
    - Qatargas 2 (LNG): 12.8 — Expected completion: 2008 (Q2)
    - Qatargas 3 (LNG): 7.8 — Expected completion: 2009 (Q2)
    - Qatargas 4 (LNG): 7.8 — Expected completion: 2010 (Q4)
    - Rasgas, North field development (LNG): 32.2
    - Dolphin gas project: 2.9 — Expected completion: 2008-09
    - Pearl GTL: 18.0 — Expected completion: 2011
    - Oryx GTL: 1.0 — Expected completion: 2007
  - Total cost (Oil): 7.7
    - New Laffan refinery: 0.7 — Expected completion: 2008
    - Al Shaheen field EPSA: 5.0 — Expected completion: 2009
    - Al-Shaheen refining project: 2.0
  - Total cost (Petrochemicals): 32.1
    - Qatofin: 1.2 — Expected completion: 2008
    - Complex with Honam Petrochemical: 4.0 — Expected completion: 2010-11
    - Qafco: 15.0 — Expected completion: 2010
    - QChem: 22.2 — Expected completion: 2008
    - Qapco: 0.5 — Expected completion: 2009-10
    - Exxon-Mobile petrochemicals: 3.8 — Expected completion: 2012
    - Shell petrochemicals: 3.4
    - GE petrochemicals: 2.0
- Projected LNG production (selected): 24.7 (2006), 28.6 (2007), 35.3 (2008), 45.8 (2009), 56.3 (2010), 66.8 (2011), 77.3 (2012).
- Crude oil production projections (th. barrels per day): 803 (2006), 896 (2007), 901 (2008), 928 (2009), 1,044 (2010), 1,027 (2011), 989 (2012).

### Fiscal and external outlook — short term (2007–08) and staff projections
- 2007 projections (staff):
  - Inflation about 12 percent.
  - External current account surplus projected at 33 percent of GDP in 2007 (statement revisions put it at 35 percent).
  - Imports projected to grow 30 percent (mainly for investment projects).
  - QCB gross reserves projected to increase by $1.1 billion to $6.5 billion by year’s end.
- FY2007/08 budget: envisages a surplus of QR 6.7 billion (2.6 percent of staff-estimated GDP) based on an oil price assumption of $40 per barrel and a 1.3 percent decline in expenditure relative to FY2006/07 outcome.
- Staff projection (oil price $67 pb and higher-than-budgeted expenditure by 7 percent of GDP): fiscal surplus projected to increase to 11.5 percent of GDP in FY2007/08.
- Historical budget behavior: FY2006/07 actual outcome exceeded budgeted expenditures by about 6 percent of GDP; authorities typically allow higher actual expenditure when revenue exceeds forecast.

### Medium-term outlook and risks (2008–12)
- Medium-term baseline projections (selected):
  - Real GDP growth projected to average over 12 percent a year through 2012; real GDP percent change: 14.1 (2008), 13.1 (2009), 14.5 (2010), 10.1 (2011), 9.5 (2012).
  - Authorities expect fiscal surpluses averaging 15 percent of GDP (authorities’ medium-term intent).
  - Nonhydrocarbon fiscal deficit as percent of nonhydrocarbon GDP projected to decline gradually to 15 percent by FY2012/2013 (corresponding ratio to GDP is 6 percent).
  - Total external debt: declined to 57 percent of GDP in 2006, projected to increase to 77 percent of GDP by 2012 owing to increased borrowing associated with investment projects (table projections show Total external debt in percent of GDP: 56.7 (2006), 61.1 (2007), and medium-term projections table).
- Key downside risks:
  - Lower oil prices and shortfalls in gas production (scenario analyses include baseline minus $5 in 2007 and minus $10 in 2008–12; GDP growth under scenario of 20 percent lower gas production; current account under 10 percent lower gas production).
  - Continued high inflation.
  - Banking system vulnerability to real estate price corrections given rapid credit growth to the private sector.
  - Security deterioration in the Gulf region.

### Monetary conditions, exchange rate regime, and inflation dynamics
- Exchange rate: Qatari riyal pegged to the U.S. dollar at QR 3.64 = $1.00 since July 2002 (unofficial peg since June 1980); authorities committed to peg through transition to GCC monetary union and view pegged regime as likely post-union.
- With complete capital mobility and the peg, nominal domestic interest rates have tracked U.S. rates closely; stable U.S. rates and rising inflation produced increasingly negative real interest rates.
- QCB operations and liquidity management:
  - QCB uses the Qatar Money Market Rates (QMR) overnight corridor to guide interbank rate; controls interday liquidity; established restrictions on bank credit and personal loans.
  - Ministry of Finance intends to issue treasury securities of different maturities to help QCB absorb liquidity and develop secondary market.
- Inflation contributors (2006): high aggregate demand growth; sharp rent increases; increases in domestic fuel prices; expansionary fiscal policy; some effect from U.S. dollar depreciation versus EU and Japan currencies.
- Population growth: 5.4 percent a year during 2000–06 versus 2.4 percent a year in 1991–99.
- Authorities introduced a cap of 10 percent on annual rent increases for a 2-year period and view inflation as largely temporary from supply bottlenecks.

### Financial sector development, regulation, and vulnerabilities
- Banking sector prudential indicators (end-2006):
  - Average capital-assets ratio (CAR): 15 percent.
  - Gross nonperforming loan ratio: 2.2 percent (declined from 4.3 percent at end-2005).
  - Ratio of loan loss reserves to nonperforming loans: about 94 percent.
  - Selected indicators: Regulatory capital/risk-weighted assets 15.0; Non-performing loans/total loans 2.2; Net profits/average shareholders' equity 27.2; Liquid assets/liquid liabilities 53.2; Total assets in foreign currencies/Total liabilities in foreign currencies 141.4.
- Financial intermediation and market statistics:
  - Bank assets totaled 100 percent of GDP at end-2006.
  - Credit to the private sector 41 percent of GDP at end-2006 (29 percent at end-2002).
  - At end-2006, 36 companies listed on DSM; market capitalization over 100 percent of GDP.
- FSAP and regulatory reforms:
  - 2007 FSAP mission noted steps to develop financial services and regulatory structure; QFC created in 2005; vision adopted spring 2007 for a single financial market and a unified financial services regulatory authority scheduled to begin operations early 2008.
  - Banks implementing risk management frameworks to adopt Basle II during 2007.
  - Challenges: credible transition plan, convergence of legal/regulatory systems, capacity building, interim reporting from QFC to QCB.
- AML/CFT: IMF Legal Department initiated assessment February 2007; draft mutual evaluation report expected for MENAFATF and FATF Plenaries (timelines in source).

### Tax policy, revenue broadening, and pension considerations
- Planned tax-legislative changes:
  - Lower corporate income tax rate for foreign companies from 35 to 12 percent.
  - Introduce a corporate income tax rate for national companies at a lower rate, with view to unify rates in the future.
  - Introduce VAT; introduce a hotel service tax; introduce a municipality property tax; reduce exemptions under tax holiday policy.
- Objective: broaden non-oil revenue base and attract foreign investors.
- Pension considerations:
  - Government considering extending pension plan to noncivil servants and providing separate plan for military personnel.
  - GRPA estimates for current system to remain fully funded: investment income portfolio yield 8 percent; salaries of participants should not increase by more than 5 percent a year, on average.
  - Actuarial projections do not show immediate weaknesses but review of generous benefits may be needed if funding pressures emerge.

### Staff recommendations, authorities’ views, and policy discussion
- Monetary policy: limited scope under the peg; if inflation persists staff recommends:
  - Restrict increases in current outlays, including wages.
  - Phase implementation of large projects to ease aggregate demand pressures.
- Financial sector:
  - Support credible transition plan for single financial market.
  - Recommend formal mechanism for QFC to report to QCB on QFC-licensed institutions’ statistics.
  - Consider introducing a deposit insurance scheme with explicit cap and risk-based premiums.
  - Monitor total debt (possibly via debt monitoring unit); coordinate debt management strategy; issue central bank bills in rials for liquidity management.
- Exchange rate and monetary union:
  - Peg appropriate in period leading up to proposed monetary union; careful study recommended for post-union period and review of exchange-rate regime/entry level when establishing union.
- Authorities’ views:
  - Inflation mainly due to supply bottlenecks; expect easing as housing supply and infrastructure improve.
  - Committed to joining GCC monetary union by 2010 but want more discussion on common market, taxation, tariff, and labor/wage policies before adoption.
  - Agreed with staff that exchange rate is in line with fundamentals and provided IIP data to staff.

### Recommendation on Article IV consultations
- Staff recommended, and authorities agreed, to move to a 12-month Article IV consultation cycle (recommendation cited reasons: strategic importance of gas reserves; benefits of more frequent policy dialogue; synchronization on GCC monetary union issues; better monitoring of financial sector developments).

### Selected macroeconomic and fiscal indicators (2001–07 and projections) — key figures (preserved exactly)
- Population: 0.8 million, 2006 estimate
- Per capita income: US$ 62,914, 2006 estimates
- Nominal GDP (millions of Qatari riyals): 63,839 (2001), 70,483 (2002), 85,663 (2003), 115,512 (2004), 154,565 (2005), 191,909 (2006), 239,564 (2007)
- Nominal GDP (millions of U.S. dollars): 17,538 (2001), 19,363 (2002), 23,534 (2003), 31,734 (2004), 42,463 (2005), 52,722 (2006), 65,814 (2007)
- Real GDP growth (percent per annum): 6.3 (2001), 3.2 (2002), 6.3 (2003), 17.7 (2004), 9.2 (2005), 10.3 (2006), 14.2 (2007)
- LNG production (million tons per year): 12.7 (2001), 13.7 (2002), 14.4 (2003), 18.9 (2004), 21.2 (2005), 24.7 (2006), 28.6 (2007)
- Oil export price (U.S. dollars per barrel): 23.60 (2001), 24.52 (2002), 27.95 (2003), 35.19 (2004), 51.69 (2005), 62.93 (2006), 67.08 (2007)
- CPI period average: 1.4 (2001), 0.2 (2002), 2.3 (2003), 6.8 (2004), 8.8 (2005), 11.8 (2006), 12.0 (2007)
- Broad money (annual change in percent): 14.0 (2001), 7.6 (2002), 4.8 (2003), 20.8 (2004), 42.9 (2005), 39.6 (2006), 43.3 (2007)
- Domestic credit (annual change in percent): 7.3 (2001), 17.8 (2002), 27.0 (2003), 30.1 (2004), 60.0 (2005), 45.7 (2006), 51.1 (2007)
- Current account (In percent of GDP): 27.3 (2001), 21.9 (2002), 25.3 (2003), 22.4 (2004), 33.2 (2005), 30.5 (2006), 33.1 (2007)
- Central bank reserves, gross (millions of U.S. dollars): 1,298 (2001), 1,504 (2002), 2,876 (2003), 3,361 (2004), 4,572 (2005), 5,416 (2006), 6,499 (2007)
- Total external debt (In percent of GDP): 81.7 (2001), 71.7 (2002), 56.7 (2003), 47.3 (2004), 48.1 (2005), 56.7 (2006), 61.1 (2007)
- Stock market index (end of period): 1,692 (2001), 2,324 (2002), 3,947 (2003), 6,494 (2004), 11,053 (2005), 7,133 (2006)

*Source: _cr0805 - Executive Summary and selected sections of the IMF staff report for the 2007 Article IV Consultation and informational annex.*

### Executive Summary ......................................................................................................

### _cr0805 - Executive Summary ......................................................................................................

### Background
- Qatar is a small, very affluent country with around 14 percent of the world’s natural gas proven reserves and a population of 0.8 million.
- Strong world economy and high oil and gas prices have driven sizeable fiscal and large external current account surpluses over the last five years.
- Government investment has increased to broaden economic diversification into petrochemicals, education, financial services, and tourism, and to foster privatization and SMEs.
- Standard and Poors recently upgraded Qatar’s long-term foreign sovereign rating to AA-, from BBB in 1996.
- Political developments: elections for 30 of the 45 members of the Majlis al-Shura expected by end-2007; professional associations licensed; unions allowed; human rights committee in existence since 2002.

### Recent Economic Developments
- Real GDP growth: about 10 percent in 2006, driven by LNG production, construction, and financial services.
- Inflation: reached 12 percent in 2006 and rose to an annualized rate of 13 percent by mid-2007, partly reflecting supply bottlenecks.
- Budget revenue in FY2006/07: 42 percent of GDP; hydrocarbon revenue mirrored rising oil prices.
- Overall fiscal surplus: rose from 8.6 percent to 9 percent of GDP in FY2006/07, aided by a reduction in development expenditures.
- Nonhydrocarbon fiscal balance as percent of nonhydrocarbon GDP: rose marginally to 47 percent.
- Current account: surplus of about 31 percent of GDP in 2006.
- Gross official reserves of the central bank (excluding government external assets): increased by about $0.8 billion in 2006 to $5.4 billion (2.4 months of next year’s imports of goods and services).
- Broad money growth: averaged 9 percent a year during 2001–03, jumped to about 40 percent a year in 2005–06.
- Credit to the private sector: annualized credit growth surged to 60 percent as of end-June 2007; estimated 50 percent in 2007.
- Banking sector prudential indicators as of end-2006:
  - Average capital-assets ratio (CAR): 15 percent.
  - Gross nonperforming loan ratio: 2.2 percent (declined from 4.3 percent at end-2005).
  - Ratio of loan loss reserves to nonperforming loans: about 94 percent.
  - Selected banking indicators (end-2006): Regulatory capital/risk-weighted assets 15.0; Non-performing loans/total loans 2.2; Net profits/average shareholders' equity 27.2; Liquid assets/liquid liabilities 53.2; Total assets in foreign currencies/Total liabilities in foreign currencies 141.4.
- Equity markets: DSM index experienced a significant correction in 2006 (partially reversing a 70 percent increase in 2005); by October 23, 2007 the index had increased by 25 percent compared with end-December 2006.
- External asset accumulation: government, financial, corporate, and household sectors increased outflows reflecting buildup of external assets.

### Monetary Conditions and Inflation
- Monetary conditions characterized by ample liquidity and strong credit growth.
- With the Qatari rial pegged to the U.S. dollar and complete capital mobility, nominal domestic interest rates have tracked U.S. interest rates closely; stable U.S. rates and rising inflation have resulted in increasingly negative real interest rates.
- Maturity mismatch risk: lending for infrastructure and construction is long-term while average deposit maturity is 3 months.
- Banks implementing risk management frameworks to adopt Basle II during 2007.

### Fiscal and External Outlook (Short-term)
- 2007 projections:
  - Macroeconomic performance estimated strong in 2007; inflation about 12 percent.
  - External current account surplus projected at 33 percent of GDP in 2007.
  - Imports projected to grow 30 percent, mainly for investment projects.
  - QCB gross reserves projected to increase by $1.1 billion to $6.5 billion by year’s end.
- FY2007/08 budget envisages a surplus of QR 6.7 billion (2.6 percent of staff-estimated GDP), based on an oil price assumption of $40 per barrel (pb), and a 1.3 percent decline in expenditure relative to FY2006/07 outcome.
- Staff projection using an oil price of $67 pb and higher-than-budgeted expenditure (by 7 percent of GDP): fiscal surplus projected to increase to 11.5 percent of GDP in FY2007/08.
- Historical budget behavior: actual outcome for FY2006/07 exceeded budgeted expenditures by about 6 percent of GDP; authorities typically allow actual expenditure to be higher than budgeted when revenue exceeds forecast.

### Medium-Term Outlook and Risks (2008–12)
- Medium-term outlook (2008–12) projected very favorable:
  - Real GDP growth projected to average over 12 percent a year through 2012.
  - Main drivers: oil and gas, petrochemicals, gas-to-liquids (GTLs), and financial and education services.
  - Strong hydrocarbon receipts projected to help maintain fiscal surpluses of 15 percent of GDP, on average.
  - Nonhydrocarbon fiscal deficit as percent of nonhydrocarbon GDP projected to decline gradually to 15 percent by FY2012/2013 (corresponding ratio to GDP is 6 percent).
  - Total external debt: declined to 57 percent of GDP in 2006, projected to increase to 77 percent of GDP by 2012 owing to increased borrowing associated with investment projects.
- Risks:
  - High inflation remains a concern.
  - Banking system could be vulnerable to real estate price corrections given rapid credit growth to the private sector.
  - Outcome depends on maintaining financial and macroeconomic stability.

### Authorities’ Views (as reported)
- Inflation attributed to supply bottlenecks; expected to ease as housing supply catches up and infrastructure improves.
- Commitment to joining the GCC monetary union by 2010, but desire for more discussion on common market, taxation agreements, tariff agreements, and labor policy and wage differences before adoption.
- Commitment to maintaining the peg to the U.S. dollar in the period leading up to the GCC monetary union; view that a pegged regime would be likely in the interest of the GCC post-union.
- Authorities agreed with staff analysis that the exchange rate is in line with fundamentals.
- Authorities provided data on Qatar’s International Investment Position (IIP) to staff.

### Staff’s Recommendations and Policy Discussion
- Monetary policy has limited scope; if inflation persists, staff recommends:
  - Restrict increases in current outlays, including wages.
  - Phase implementation of large projects to ease aggregate demand pressures.
- Financial sector:
  - Strong support for a credible transition plan for implementing the single financial market.
  - Recommend a formal mechanism to require the Qatar Financial Center (QFC) to report to the Qatar Central Bank (QCB) on financial statistics of QFC-licensed institutions.
- Exchange rate and monetary union:
  - A peg is appropriate in the period leading up to the proposed monetary union.
  - Staff recommends a careful study for the period after establishment of the monetary union.
- Consultation cycle:
  - Staff recommended, and the authorities agreed, that Qatar move to a 12-month Article IV consultation cycle.

*Source: _cr0805 - Executive Summary*

### 1. Endowed with 14 percent of the

### 1. Endowed with 14 percent of the

### Hydrocarbon endowment and exports
- Qatar holds 14 percent of the world’s reserves and has the third largest reserves of natural gas in the world, after Russia and Iran.
- Most of Qatar’s natural gas is exported as LNG; some natural gas is used domestically to generate electricity and as feedstock for the petrochemical industry.
- By 2006 Qatar had overtaken Indonesia as the largest exporter of LNG.
- Most current LNG exports are destined to China, India, Korea, and Japan.
- State-owned Qatar Petroleum (QP), through subsidiaries QatarGas and RasGas, has firm investment plans to further develop the offshore North field, where almost all of Qatar’s gas reserves are located.
- Total investments of over $80 billion in the gas sector will result in a tripling of LNG exports over the next five years, with most of the additional export capacity aimed at servicing the European and U.S. markets.
- Qatar is a mature oil producer: known fields (one onshore and eight offshore) are under production; three of the nine oil fields are operated by QP while the rest are partner-operated by international oil companies.
- Oil production capacity is expected to peak at over 1.1 million barrels per day toward the end of the decade after additional investments of $5 billion in the Al-Shaheen field.
- Products extracted from gas fields include butane, propane, and condensates. Exports of condensates are projected to increase sharply, reducing export reliance on crude oil.
- QP is investing in higher value-added downstream and petrochemical projects; production of low-sulfur diesels through GTLs technology started in 2007.

### Expected investment projects in hydrocarbon sector, 2007–12 (selected items and totals)
- Total cost (Gas): 82.5 ($ bln)
  - Qatargas 2 (LNG): 12.8 — Expected completion: 2008 (Q2)
  - Qatargas 3 (LNG): 7.8 — Expected completion: 2009 (Q2)
  - Qatargas 4 (LNG): 7.8 — Expected completion: 2010 (Q4)
  - Rasgas, North field development (LNG): 32.2
  - Dolphin gas project: 2.9 — Expected completion: 2008-09
  - Pearl GTL: 18.0 — Expected completion: 2011
  - Oryx GTL: 1.0 — Expected completion: 2007
- Total cost (Oil): 7.7 ($ bln)
  - New Laffan refinery: 0.7 — Expected completion: 2008
  - Al Shaheen field EPSA: 5.0 — Expected completion: 2009
  - Al-Shaheen refining project: 2.0
- Total cost (Petrochemicals): 32.1 ($ bln)
  - Qatofin: 1.2 — Expected completion: 2008
  - Complex with Honam Petrochemical: 4.0 — Expected completion: 2010-11
  - Qafco: 15.0 — Expected completion: 2010
  - QChem: 22.2 — Expected completion: 2008
  - Qapco: 0.5 — Expected completion: 2009-10
  - Exxon-Mobile petrochemicals: 3.8 — Expected completion: 2012
  - Shell petrochemicals: 3.4
  - GE petrochemicals: 2.0

### Projected production and exports (2007–12)
- Projections in the source include LNG production, crude oil production, condensates production, propane and butane production, and exports by category (LNG exports, crude oil exports, condensates exports, propane and butane exports, other exports). (Chart source: Qatari Petroleum; and Fund staff estimates.)

### Downside risks and scenario impacts
- Key downside risks: lower oil prices (leading to lower current account surpluses), shortfalls in gas production (leading to lower growth), continued high inflation, and deterioration of the security situation in the Gulf region.
- Fiscal policy recommendation to contain inflation over the medium term: restraint in current expenditures and phasing of development expenditures as part of a well-designed fiscal policy.
- Supply-side bottlenecks to address, especially housing shortages.
- Scenario analyses illustrated:
  - Baseline minus $5 in 2007 and minus $10 in 2008–12 (impact shown on overall fiscal balance and current account balance, in percent of GDP).
  - GDP growth under scenario of 20 percent lower gas production compared to baseline in 2008–12.
  - Current account balance under scenario of 10 percent lower gas production compared to baseline in 2008–12.
  (Figures referenced: Figure 9a and Figure 9b; sources: Qatari authorities; and Fund staff projections.)

### Key numeric points from Box 2 (Real Effective Exchange Rate and external balances)
- Qatar’s REER appreciated by 16 percent during 2004–06 following a short period of depreciation.
- External current account: observed (2006) = 31 (in percent of GDP); projected (2012) = 27; current account norm (2012) = 31 (in percent of GDP).
- GCC current account norm (2012) = 24 (in percent of GDP).
- Fiscal balance elasticity = 0.9 (estimate based on panel data for the six GCC countries during the period 1980-2005).
- The external current account norm for Qatar in 2012 is estimated at 31 percent of GDP, about the same as the observed current account surplus in 2006 (31 percent of GDP).
- The large surplus is expected to fall below the estimated norm beginning in 2009 due to an acceleration of imports associated with firm investment plans.
- Government’s medium-term policies and the current pegged exchange regime are judged sustainable.

### Exchange rate regime and monetary policy
- Authorities reiterated commitment to maintaining a peg to the U.S. dollar in the period leading up to the GCC monetary union and view a pegged regime as likely in the post-union period.
- With the exchange rate pegged and open capital mobility, the role of monetary policy is mainly limited to steering short-term interest rates to sustain the peg and to manage short-term liquidity.
- The QCB uses the Qatar Money Market Rates (QMR) overnight corridor to guide the average overnight interbank rate and controls interday liquidity; it has established restrictions on bank credit and personal loans.
- The Ministry of Finance intends to issue treasury securities of different maturities to help the QCB absorb liquidity more effectively.
- Staff analysis concluded that, despite large current account surpluses, the Qatari rial is broadly in line with its equilibrium level.

### Inflation
- As of June 2007, annualized inflation was estimated at 13 percent, compared with 12 percent during 2006.
- Annual inflation excluding house rents, fuels, and other energy products increased to almost 6 percent in 2006, from about 4 percent in 2005.
- Contributing factors in 2006: high aggregate demand growth; sharp increases in rents associated with growing population; increases in domestic fuel prices; expansionary fiscal policy; and, to a lesser extent, the depreciation of the U.S. dollar against the currencies of Qatar’s major trading partners (EU and Japan).
- Population grew at an average rate of 5.4 percent a year during 2000–06, compared to 2.4 percent a year in 1991–99.
- Authorities introduced a cap of 10 percent on annual rent increases for a 2-year period.
- Authorities view the inflation increase as temporary and driven by supply bottlenecks; they expect it to subside as housing supply increases and see increased fiscal expenditure on infrastructure and housing as necessary to build capacity and reduce inflation in the future.

### Financial sector development and regulation
- May 2007 FSAP mission noted steps to develop the financial services industry and its regulatory structure.
- In 2005 authorities created an on-shore parallel financial system—the QFC—with its own legal framework to offer global financial institutions a familiar regulatory and supervisory environment.
- In Spring 2007 authorities adopted a vision of a single financial market with a unified financial services regulatory authority.
- A unified independent financial services regulatory body (consisting of the QFC Regulatory Authority (QFCRA), the QCB’s banking supervision department, and the Doha Stock Market (DSM) regulator) is scheduled to begin operations as of early 2008 with broad powers to authorize, supervise, and discipline regulated financial institutions, firms, and individuals.
- Challenges: designing a credible transition plan; convergence of two legal and regulatory systems; addressing needs of the QFC and local institutions; capacity building for operational convergence.
- Authorities embarked on a multiyear implementation plan with steering committees and expatriate experts.
- Financial intermediation indicators:
  - Bank assets totaled 100 percent of GDP at end-2006.
  - Credit to the private sector amounted to 41 percent of GDP at end-2006, compared with 29 percent at end-2002.
  - At end-2006, 36 companies were listed on the DSM; market capitalization was over 100 percent of GDP; trading volume was just short of two billion shares.
- Anti-money laundering and combating the financing of terrorism (AML/CFT):
  - An assessment was initiated by the IMF’s Legal Department in February 2007.
  - A draft mutual evaluation report was expected to be considered for adoption by the MENAFATF and FATF Plenaries in April 2008 and June 2008, respectively.
  - Preliminary findings indicate notable progress since the FATF/GCC mutual evaluation in 2002, but further considerable efforts are needed to meet revised FATF standards.

### GCC monetary union and convergence
- Following the Common External Tariff in 2003, GCC governments agreed to form a monetary union by 2010; GCC leaders in May 2007 reached agreement on proposed convergence criteria and set a target date of 2008 for full-fledged establishment of the customs union and the common market.
- As of end-2006, GCC countries had met most convergence criteria, but inflation rates in Qatar and the U.A.E. had risen to well above the GCC average.
- The Qatar authorities proposed using a measure of core inflation (excluding rents) for the inflation convergence criterion, arguing supply-side factors outside their control drove inflation; the U.A.E. holds a similar view.
- Remaining challenges to monetary union: differing oil and gas reserves and structural characteristics affecting common fiscal criteria; coordination of monetary, exchange rate, and reserves policies; integrating clearing and settlement systems; common supervisory and regulatory standards; transition issues to a new currency (including seignorage); harmonizing statistical methodologies and data.
- A consensus emerged that the process toward monetary union should not be rushed and the target date should be extended if necessary; Qatari authorities want more discussion on the common market, taxation agreements, tariff agreements, labor policy, and wage differences before establishment.

### Prudential regulation and other structural reforms
- QCB has been enhancing prudential regulation and supervision; banking regulation broadly conforms with the Basel Committee’s Core Principles.
- Payments and securities settlement systems are being upgraded.
- Improvements to QCB capacity to assess banks’ risk management practices are ongoing.
- Authorities are working on legislation on governance and transparency (fit and proper criteria).

*Source: IMF staff report content (1. Endowed with 14 percent of the world’s reserves).*

### 29.      The authorities are of the view that broadening the non-oil revenue base is

### _cr0805 - 29.      The authorities are of the view that broadening the non-oil revenue base is

### Tax policy and non-oil revenue broadening
- Existing tax system characterized by a narrow income tax base and the absence of a consumption tax.
- Planned corporate income tax changes:
  - Lower the corporate income tax rate for foreign companies from 35 to 12 percent.
  - Introduce a corporate income tax rate for national companies at a lower rate, with a view to unifying these rates in the future and creating a level playing-field.
- Other planned tax-legislative changes:
  - Introduction of a VAT.
  - Introduction of a hotel service tax.
  - Introduction of a municipality property tax.
  - Reduction of exemptions under the tax holiday policy.
- Policy objective: reduce the economy’s heavy dependence on the hydrocarbon sector by broadening the non-oil revenue base and attracting foreign investors.

### Pension system considerations
- Government is considering:
  - Extending the pension plan to noncivil servants.
  - Providing a separate plan for military personnel.
- GRPA estimates for current system to remain fully funded:
  - Investment income portfolio should have a yield of 8 percent.
  - Salaries of participants should not increase by more than 5 percent a year, on average.
- Actuarial projections do not show immediate weaknesses; a review of current generous benefits may be needed if funding pressures emerge.

### Economic data and transparency
- Provision of IIP data to the Fund is important to strengthen surveillance effectiveness.
- Sovereign wealth funds (SWF) channel large export receipts; information on their transactions helps assess sterilization through outward SWF investment and liquidity management.
- Authorities provided requested data on Qatar’s IIP to staff; Qatar’s Executive Director will make the information available to the Executive Board at the time of the Board Meeting for the 2007 Article IV Consultation.
- Authorities commit to improving quality of economic data provided to the Fund and the public.
  - Recognize that a number of recommendations of the 2005 Multisector Statistics and General Data Dissemination Standards (GDDS) mission remain to be implemented.
  - Intend to request further technical assistance from the Fund’s Statistics department to help formulate a strategy to strengthen statistical capacity, including the compilation of the external financial account and the development of early warning indicators.

### Staff appraisal — growth, diversification, and macro stability
- High oil and gas prices have allowed rapid economic expansion and encouraged foreign investments in the oil and gas sector.
- Qatar’s prospects as a world leader in exports of LNG and ultra-clear fuels present opportunities for petrochemicals expansion and private sector development.
- Macroeconomic stability and development of the nonhydrocarbon sector are crucial for sustainable growth.

### Staff appraisal — inflation and fiscal stance
- Containing inflation should be a priority.
  - Authorities believe housing-related inflationary pressures will ease, but recent large public sector wage increases and ongoing investments suggest inflationary pressures are likely to remain high in 2007–08.
  - Nonhydrocarbon fiscal balance as a percent of nonhydrocarbon GDP is projected to decline over the medium term, helping to reduce inflationary pressures.
- Policy recommendations if inflation persists:
  - Restrain other current outlays.
  - Phase implementation of large projects in line with absorptive capacity and medium-term priorities.
- Views on rent control and core inflation measures:
  - Evidence suggests effectiveness of a cap on housing rents is limited; it should be viewed as a short-term temporary measure.
  - Staff skeptical about using a measure of (core) inflation tailored to a country’s specific circumstances; choice of an appropriate core inflation measure ought to be studied carefully and from a GCC-wide perspective.

### Financial sector reform and supervision
- Authorities have started implementing recommendations from the 2007 FSAP:
  - Refinements to licensing criteria, rules on ownership and control of banks, and assessments of country and operational risk.
- Establishment of a single financial market and a unified regulator:
  - Important for QCB, MoF, and the new regulator to agree on a tri-partite memorandum of understanding covering financial monitoring and oversight, crisis resolution, and payment systems regulation and operation.
  - Challenges include establishing the new regulator’s independence and fostering cooperation with other institutions.
- Monitoring and prudential measures:
  - Stress tests in the 2007 FSAP indicate the financial system is robust, but rapid rise in real estate-related lending and bank exposure to new IPO lending should continue to be monitored closely.
  - Authorities should use current strong market conditions to establish procedures to address issues arising from increased competition.
  - Consideration may be given to introducing a deposit insurance scheme with an explicit cap and risk-based premiums.

### Debt monitoring and capital market development
- Staff recommends monitoring total debt, possibly through a debt monitoring unit, by collecting data and maintaining adequate regulatory oversight.
- External borrowing by financial institutions and large corporations has picked up significantly, but external vulnerability is limited given:
  - Qatar’s large net creditor position.
  - Borrowing for export-related activity.
  - Increasing use of secured debt instruments.
- Capital market development recommendations:
  - Set appropriate conditions for developing the capital market, including a vibrant corporate bond market.
  - Authorities’ plans to issue treasury securities to develop a secondary market and create a yield curve are welcome.
  - Need for a coordinated debt management strategy to facilitate forecasting and management of liquidity at the QCB.
  - Consider broadening QCB’s market instruments by issuing central bank bills in Qatari rials for liquidity management.
  - Availability of corporate bonds would deepen financial markets, allow banks to better manage liquidity, and provide corporations additional instruments to match maturities.

### Exchange rate policy and implications for GCC monetary union
- Staff shares authorities’ view that the peg to the U.S. dollar has served Qatar well by:
  - Reducing trade and financial transaction costs.
  - Encouraging investment activities.
  - Providing a credible nominal anchor.
- Recommendation: peg should be maintained in the transition to the GCC monetary union.
- Cautions:
  - The exchange rate regime and the exchange rate level at which Qatar enters the single currency arrangement should be reviewed carefully when establishing the monetary union.
  - Diversification away from oil and shifts in the distribution of international financial assets may lessen the need for a continuing focus on the U.S. dollar.
  - Tightening labor markets from increased competition among GCC states, varying fiscal policy needs, and greater integration with international capital markets will make managing a common peg more challenging.

### QCB capacity, statistics, and reporting
- QCB is developing capacity for financial stability analysis and reporting in anticipation of a future environment where bank supervision will be the responsibility of a single unified regulator.
- QCB plans welcomed:
  - Establish a statistical database to inform policy making.
  - Develop leading macroeconomic indicators.
  - Design early warning systems.
- Fund could provide technical assistance in these areas.
- Interim measures:
  - A formal mechanism should be put in place for the QFC to report to the QCB on the financial situation of QFC-licensed institutions.
  - As the scope of financial transactions increases, it will be necessary to incorporate data from all relevant institutions into Qatar’s monetary and financial statistics.

*Source: _cr0805 - 29.      The authorities are of the view that broadening the non-oil revenue base is*

### 42.      As discussed with the authorities, it is recommended that the next Article IV

### _cr0805 - 42.      As discussed with the authorities, it is recommended that the next Article IV

### Recommendation on Article IV consultation cycle
- It is recommended that the next Article IV discussions with Qatar take place within a 12-month cycle, instead of 24 months.
- Reasons for shortening the Article IV cycle:
  - (a) the strategic importance of Qatar’s gas reserves;
  - (b) the benefits derived from a more frequent policy dialogue;
  - (c) more synchronized discussions on GCC monetary union issues (especially in the period leading to 2010);
  - (d) a better monitoring of financial sector developments, particularly in view of the establishment of new financial centers in the region.

### Selected macroeconomic indicators (2001–07) — key figures
- Population: 0.8 million, 2006 estimate
- Per capita income: US$ 62,914, 2006 estimates
- Quota: SDR 263.80 million
- Nominal GDP (in millions of Qatari riyals): 63,839 (2001), 70,483 (2002), 85,663 (2003), 115,512 (2004), 154,565 (2005), 191,909 (2006), 239,564 (2007)
- Nominal GDP (in millions of U.S. dollars): 17,538 (2001), 19,363 (2002), 23,534 (2003), 31,734 (2004), 42,463 (2005), 52,722 (2006), 65,814 (2007)
- Nominal GDP per capita (in U.S. dollars): 27,030 (2001), 28,355 (2002), 32,788 (2003), 41,949 (2004), 53,333 (2005), 62,914 (2006), 70,754 (2007)
- Real GDP growth (In percent per annum): 6.3 (2001), 3.2 (2002), 6.3 (2003), 17.7 (2004), 9.2 (2005), 10.3 (2006), 14.2 (2007)
- Hydrocarbon share (nominal hydrocarbon GDP, in millions of Qatari riyals): 36,812 (2001), 40,717 (2002), 50,551 (2003), 62,922 (2004), 92,071 (2005), 118,707 (2006), 149,376 (2007)
- Crude oil output (thousand barrels per day): 680 (2001), 694 (2002), 721 (2003), 753 (2004), 760 (2005), 803 (2006), 896 (2007)
- LNG production (million tons per year): 12.7 (2001), 13.7 (2002), 14.4 (2003), 18.9 (2004), 21.2 (2005), 24.7 (2006), 28.6 (2007)
- Oil export price (U.S. dollars per barrel): 23.60 (2001), 24.52 (2002), 27.95 (2003), 35.19 (2004), 51.69 (2005), 62.93 (2006), 67.08 (2007)
- CPI period average: 1.4 (2001), 0.2 (2002), 2.3 (2003), 6.8 (2004), 8.8 (2005), 11.8 (2006), 12.0 (2007)

### Public finance — headline ratios (fiscal year basis)
- Total revenue (In percent of GDP): 34.7 (2002/03), 39.7 (2003/04), 33.0 (2004/05), 44.0 (2005/06), 39.6 (2006/07), 41.8 (2006/07 est), 44.5 (2007/08 proj)
- Hydrocarbon revenue (In percent of GDP): 23.8 (2002/03), 25.7 (2003/04), 21.2 (2004/05), 29.0 (2005/06), 26.6 (2006/07), 26.9 (2006/07 est), 28.9 (2007/08 proj)
- Total expenditure and net lending (In percent of GDP): 31.3 (2002/03), 30.7 (2003/04), 27.1 (2004/05), 28.8 (2005/06), 31.0 (2006/07), 32.7 (2006/07 est), 33.0 (2007/08 proj)
- Current expenditure (In percent of GDP): 26.5 (2002/03), 24.7 (2003/04), 22.3 (2004/05), 22.6 (2005/06), 20.0 (2006/07), 24.3 (2006/07 est), 22.2 (2007/08 proj)
- Capital expenditure (including net lending, In percent of GDP): 4.8 (2002/03), 6.0 (2003/04), 4.8 (2004/05), 6.3 (2005/06), 11.0 (2006/07), 8.4 (2006/07 est), 10.7 (2007/08 proj)
- Overall fiscal balance (In percent of GDP): 3.4 (2002/03), 9.0 (2003/04), 5.9 (2004/05), 15.1 (2005/06), 8.6 (2006/07), 9.1 (2006/07 est), 11.5 (2007/08 proj)
- Excluding hydrocarbon revenue (In percent of GDP): -20.3 (2002/03), -16.7 (2003/04), -15.3 (2004/05), -13.9 (2005/06), -18.0 (2006/07), -17.8 (2006/07 est), -17.4 (2007/08 proj)
- Nonhydrocarbon fiscal balance in percent of nonhydrocarbon GDP: -48.0 (2002/03), -39.9 (2003/04), -36.1 (2004/05), -31.5 (2005/06), -45.2 (2006/07), -46.8 (2006/07 est), -46.7 (2007/08 proj)

### Monetary and credit aggregates — selected levels and growth
- Broad money (annual change in percent): 14.0 (2001), 7.6 (2002), 4.8 (2003), 20.8 (2004), 42.9 (2005), 39.6 (2006), 43.3 (2007)
- Net foreign assets (annual change in percent): 2.6 (2001), 27.8 (2002), 43.3 (2003), 23.2 (2004), 50.3 (2005), 28.1 (2006), 20.7 (2007)
- Net domestic assets (annual change in percent): 21.2 (2001), -3.2 (2002), -22.3 (2003), 17.6 (2004), 32.7 (2005), 57.4 (2006), 71.6 (2007)
- Domestic credit (annual change in percent): 7.3 (2001), 17.8 (2002), 27.0 (2003), 30.1 (2004), 60.0 (2005), 45.7 (2006), 51.1 (2007)

### External sector — key flows and stocks (U.S. dollars)
- Trade balance (millions of U.S. dollars): 8,126 (2001), 7,771 (2002), 9,224 (2003), 13,540 (2004), 17,058 (2005), 20,272 (2006), 26,374 (2007)
- Exports (millions of U.S. dollars): 11,511 (2001), 11,421 (2002), 13,582 (2003), 18,950 (2004), 26,122 (2005), 35,083 (2006), 45,480 (2007)
  - Of which crude oil: 5,825 (2001), 6,222 (2002), 7,520 (2003), 9,702 (2004), 14,122 (2005), 17,840 (2006), 22,553 (2007)
  - LNG and related exports: 4,081 (2001), 3,734 (2002), 4,632 (2003), 6,554 (2004), 8,738 (2005), 13,360 (2006), 18,178 (2007)
- Imports (millions of U.S. dollars): -3,386 (2001), -3,650 (2002), -4,359 (2003), -5,410 (2004), -9,064 (2005), -14,811 (2006), -19,106 (2007)
- Current account (millions of U.S. dollars): 4,792 (2001), 4,248 (2002), 5,946 (2003), 7,100 (2004), 14,107 (2005), 16,102 (2006), 21,757 (2007)
- Current account (In percent of GDP): 27.3 (2001), 21.9 (2002), 25.3 (2003), 22.4 (2004), 33.2 (2005), 30.5 (2006), 33.1 (2007)
- Central bank reserves, gross (millions of U.S. dollars): 1,298 (2001), 1,504 (2002), 2,876 (2003), 3,361 (2004), 4,572 (2005), 5,416 (2006), 6,499 (2007)
- Central bank reserves, gross (In months of imports of goods and services): 2.9 (2001), 2.7 (2002), 4.2 (2003), 3.0 (2004), 2.6 (2005), 2.4 (2006), 2.3 (2007)
- Total external debt (including commercial banks, millions of U.S. dollars): 14,328 (2001), 13,893 (2002), 13,355 (2003), 15,011 (2004), 20,422 (2005), 29,878 (2006), 40,243 (2007)
- Total external debt (In percent of GDP): 81.7 (2001), 71.7 (2002), 56.7 (2003), 47.3 (2004), 48.1 (2005), 56.7 (2006), 61.1 (2007)

### Government finance — detailed summary (2002/03–2007/08, Qatari riyals)
- Total revenue (millions of Qatari riyals): 29,453 (2002/03), 30,717 (2003/04), 55,064 (2004/05), 64,984 (2005/06), 56,902 (2006/07), 85,225 (2006/07 est), 72,457 (2007/08 budget), 113,365 (2007/08 proj)
- Hydrocarbon revenue (millions of Qatari riyals): 19,059 (2002/03), 19,759 (2003/04), 36,319 (2004/05), 43,616 (2005/06), 31,051 (2006/07), 54,919 (2006/07 est), 42,095 (2007/08 budget), 73,640 (2007/08 proj)
- Total expenditure (millions of Qatari riyals): 22,799 (2002/03), 25,212 (2003/04), 36,103 (2004/05), 50,820 (2005/06), 54,569 (2006/07), 66,588 (2006/07 est), 65,713 (2007/08 budget), 84,053 (2007/08 proj)
- Overall balance (millions of Qatari riyals): 6,654 (2002/03), 5,505 (2003/04), 18,961 (2004/05), 14,164 (2005/06), 2,333 (2006/07), 18,637 (2006/07 est), 6,744 (2007/08 budget), 29,312 (2007/08 proj)
- Nonhydrocarbon fiscal balance (millions of Qatari riyals): -12,405 (2002/03), -14,254 (2003/04), -17,358 (2004/05), -29,452 (2005/06), -33,808 (2006/07), -36,282 (2006/07 est), -46,134 (2007/08 budget), -44,328 (2007/08 proj)
- Government gross domestic debt (millions of Qatari riyals): 20,741 (2002/03), 20,801 (2003/04), 18,506 (2004/05), 17,151 (2005/06), ... (2006/07), 17,496 (2006/07 est), ... (2007/08), 18,889 (2007/08 proj)

### Monetary survey — selected levels (2001–Jun-07)
- Net foreign assets (millions of Qatari riyals): 14,098 (2001), 18,017 (2002), 25,819 (2003), 31,812 (2004), 47,820 (2005), 57,495 (2006), 61,250 (Jun-06), 51,104 (Prel. Jun-07), 73,957 (Proj. Jun-07)
- Broad money (millions of Qatari riyals): 40,547 (2001), 43,628 (2002), 45,729 (2003), 55,231 (2004), 78,901 (2005), 97,244 (2006), 110,173 (Jun-06), 122,457 (Prel. Jun-07), 157,899 (Proj. Jun-07)
- Domestic credit (millions of Qatari riyals): 19,603 (2001), 23,100 (2002), 29,330 (2003), 38,170 (2004), 61,079 (2005), 71,128 (2006), 88,986 (Jun-06), 115,637 (Prel. Jun-07), 134,433 (Proj. Jun-07)

### Balance of payments (2001–07) — highlights (millions of U.S. dollars)
- Current account: 4,792 (2001), 4,248 (2002), 5,946 (2003), 7,100 (2004), 14,107 (2005), 16,102 (2006), 21,757 (2007)
- Exports (total): 11,511 (2001), 11,421 (2002), 13,582 (2003), 18,950 (2004), 26,122 (2005), 35,083 (2006), 45,480 (2007)
- Financial account (net): -2,482 (2001), -2,639 (2002), -2,996 (2003), -8,571 (2004), -5,710 (2005), -8,827 (2006), -19,625 (2007)
- Direct Investment, net: 400 (2001), 500 (2002), 500 (2003), 1,500 (2004), 2,500 (2005), 3,500 (2006), 4,700 (2007)
- Errors and omissions: -2,205 (2001), -1,031 (2002), -1,260 (2003), 2,508 (2004), -6,447 (2005), -5,486 (2006), 0 (2007)

### Vulnerability indicators and financial sector metrics (2001–06)
- REER (CPI based - end of period): 3.3 (2001), -2.0 (2002), -5.7 (2003), -0.1 (2004), 7.1 (2005), 8.3 (2006)
- Total debt (in billions of U.S. dollars, including commercial banks): 14.3 (2001), 13.9 (2002), 13.4 (2003), 15.0 (2004), 20.4 (2005), 29.9 (2006)
- Total debt (in percent of GDP): 81.7 (2001), 71.7 (2002), 56.7 (2003), 47.3 (2004), 48.1 (2005), 56.7 (2006)
- Debt service/exports of goods and services: 25.1 (2001), 23.6 (2002), 23.8 (2003), 8.8 (2004), 7.4 (2005), 7.4 (2006)
- Government gross domestic debt/GDP: 33.9 (2001), 27.9 (2002), 22.3 (2003), 14.8 (2004), 10.5 (2005), 8.6 (2006)
- Central bank net reserves (millions of U.S. dollars): 1,296 (2001), 1,502 (2002), 2,873 (2003), 3,358 (2004), 4,555 (2005), 5,410 (2006)
- In months of imports: 2.9 (2001), 2.7 (2002), 4.1 (2003), 3.0 (2004), 2.6 (2005), 2.4 (2006)
- Stock market index (end of period): 1,692 (2001), 2,324 (2002), 3,947 (2003), 6,494 (2004), 11,053 (2005), 7,133 (2006)
- Moody's investor services rating: Baa2 (2001), A3 (2002), A3 (2003), A3 (2004), A3 (2005), A1 (2006), Aa2 (2007)
- Standard and Poor's long-term foreign currency rating (2006): BBB+ (2001), A- (2002), A- (2003), A+ (2004), A+ (2005), AA- (2006)

### Medium-term baseline scenario (2002–12) — selected projections
- Nominal GDP (in millions of Qatari riyals): 70,483 (2002), 85,663 (2003), 115,512 (2004), 154,565 (2005), 191,909 (2006), 239,564 (2007), 301,458 (2008), 343,828 (2009), 397,429 (2010), 442,082 (2011), 488,836 (2012)
- Real GDP (percent change): 3.2 (2002), 6.3 (2003), 17.7 (2004), 9.2 (2005), 10.3 (2006), 14.2 (2007), 14.1 (2008), 13.1 (2009), 14.5 (2010), 10.1 (2011), 9.5 (2012)
- Hydrocarbon GDP growth (percent change): 2.2 (2002), 5.6 (2003), 12.5 (2004), 6.0 (2005), 10.7 (2006), 18.0 (2007), 17.6 (2008), 15.6 (2009), 17.8 (2010), 10.2 (2011), 9.3 (2012)
- Nonhydrocarbon GDP growth (percent change): 4.5 (2002), 7.3 (2003), 24.6 (2004), 13.1 (2005), 10.0 (2006), 10.0 (2007), 10.0 (2008), 10.0 (2009), 10.0 (2010), 10.0 (2011), 10.0 (2012)
- Crude oil production, th. barrels per day (projections): 803 (2006), 896 (2007), 901 (2008), 928 (2009), 1,044 (2010), 1,027 (2011), 989 (2012)
- LNG Production, millions of tons (projections): 24.7 (2006), 28.6 (2007), 35.3 (2008), 45.8 (2009), 56.3 (2010), 66.8 (2011), 77.3 (2012)
- Qatar oil export price (U.S. dollars per barrel) projections: 62.93 (2006), 67.08 (2007), 73.43 (2008), 70.74 (2009), 69.03 (2010), 68.05 (2011), 67.31 (2012)
- CPI period average projections: 11.8 (2006), 12.0 (2007), 10.0 (2008), 8.0 (2009), 6.0 (2010), 5.0 (2011), 4.0 (2012)
- Central government finances (in millions of Qatari riyals):
  - Total revenue: 29,453 (2002), 30,717 (2003), 55,064 (2004), 64,984 (2005), 85,225 (2006), 113,365 (2007), 131,078 (2008), 144,383 (2009), 167,435 (2010), 180,750 (2011), 187,823 (2012)
  - Total expenditure: 22,799 (2002), 25,212 (2003), 36,103 (2004), 50,820 (2005), 66,588 (2006), 84,053 (2007), 92,132 (2008), 95,803 (2009), 99,990 (2010), 104,783 (2011), 109,394 (2012)
  - Overall balance (millions of Qatari riyals): 6,654 (2002), 5,505 (2003), 18,961 (2004), 14,164 (2005), 18,637 (2006), 29,312 (2007), 38,946 (2008), 48,580 (2009), 67,445 (2010), 75,967 (2011), 78,430 (2012)
  - Overall balance (In percent of GDP): 9.0 (2002), 5.9 (2003), 15.1 (2004), 8.6 (2005), 9.1 (2006), 11.5 (2007), 12.5 (2008), 13.6 (2009), 16.5 (2010), 16.7 (2011), 15.7 (2012)

### Fund relations, technical assistance, and statistical issues
- Membership: Joined 09/08/72; Article VIII, 06/04/73
- Quota: 263.80 SDR million
- The Qatari riyal has been pegged to the U.S. dollar at QR 3.64 = $1.00 since July 2002 (unofficial peg since June 1980).
- Article IV consultation history:
  - Previous Article IV discussions took place in Doha in May 2004; staff team visited Qatar February 7–10, 2005. The Executive Board discussed the Staff Report and supplement on March 11, 2005.
  - Qatar moved to the 24-month Article IV consultation cycle in 1997; recommendation here is to revert to a 12-month cycle.
- FSAP, ROSCs, AML/CFT:
  - FSAP missions: January and May 2007.
  - AML/CFT assessment initiated by Fund’s Legal Department during February 2007 mission; draft joint evaluation report expected for MENAFATF and FATF Plenaries in November 2007 and February 2008, respectively.
- Technical assistance chronology (selected entries):
  - STA November/December 1994: Multisector statistics
  - MAE June 1995: Financial sector reform
  - MAE April 1997: Reform of the legal framework of The Qatar Central Bank
  - STA April 2006: Government finance statistics
  - LEG November 2006: AML/CFT pre-assessment
  - STA April 2007: GDDS assessment
- Statistical issues and data gaps:
  - Economic data are broadly adequate for surveillance but substantial scope exists to improve frequency, timeliness, and coverage.
  - Monetary statistics have improved after Fund assistance, including better classification of the government sector and regular publication of analytical accounts of banks.
  - Long lags exist in reporting of price indices and other real sector statistics to IFS; international trade details are reported only sporadically to Direction of Trade Statistics.
  - Public finance data are not reported for publication in IFS or other Fund publications; monthly and quarterly data are not reported for publication in IFS.
  - National accounts suffer from inadequate enterprise coverage, poor survey responses, large revisions, and an outdated base year (1988); work underway to implement 1993 SNA with 2001 as base year.
  - CPI index deficiencies: nonfood item prices collected mainly at annual intervals; CPI weights based on 1988 Household Expenditure Survey; CPI has 2001 as base year; no monthly CPI data available historically.
  - Balance of payments: improvements made (ITRS expansion, new reporting for oil and gas companies), first-time conformity to BPM5 format for GDDS submission in 2007, but omissions remain (no inward/outward direct investment compilation, no portfolio investment data for nonbank sector, large errors and omissions).
  - External debt: no official public information on amount or breakdown; detailed medium- and long-term external debt data provided to missions but public reporting needs improvement.

*Source: Staff Report for the 2007 Article IV Consultation — Informational Annex (November 6, 2007).*

### 1.      This statement provides information on recent developments in Qatar that has become

### 1.      This statement provides information on recent developments in Qatar that has become

### Revisions to projections and key numeric updates
- WEO oil price projections revised in November 2007; 2007 average petroleum spot price (APSP) projected to average $71 a barrel, about 4 percent higher than in the September 2007 WEO baseline.
- External current account surplus for 2007 expected to increase by about 2 percentage points over the staff report projection, to reach 35 percent of GDP.
- Current account path (Table 1, revised vs. staff report):
  - 2007: Staff Report 33.1; Revised 35.0
  - 2008: Staff Report 34.7; Revised 42.9
  - 2009: Staff Report 29.7; Revised 37.0
  - 2010: Staff Report 31.7; Revised 39.3
  - 2011: Staff Report 30.2; Revised 38.6
  - 2012: Staff Report 26.8; Revised 35.8
- Fiscal impact: government’s fiscal balance in 2007 expected to be over 1 percentage point of GDP higher than indicated in the staff report.
- Overall fiscal balance for 2008–12 projected to increase by almost 3 percentage points of GDP relative to the staff report projections.
- WEO oil prices (memorandum, in U.S. dollars per barrel) from Table 1:
  - 2007: Staff Report 68.5; Revised 71.3
  - 2008: Staff Report 75.0; Revised 88.5
  - 2009: Staff Report 72.3; Revised 83.0
  - 2010: Staff Report 70.5; Revised 81.0
  - 2011: Staff Report 69.5; Revised 80.5
  - 2012: Staff Report 68.8; Revised 80.3
- Nominal GDP (in billions of Qatari riyals), Table 1 (Staff Report vs. Revised):
  - 2007: 240 / 246
  - 2008: 301 / 336
  - 2009: 344 / 376
  - 2010: 397 / 434
  - 2011: 442 / 484
  - 2012: 489 / 537

### Recent monetary and market developments
- On November 1, the Qatar Central Bank cut its deposit facility rate by 25 basis points, following the U.S. Federal Reserve Board decision of October 31, 2007.
- Data on inflation in the third quarter of 2007 were not yet available in the statement.
- Doha Securities Market index: as of November 20, the market index had increased by 34 percent relative to end-2006, but remained 26 percent lower than the peak reached in September 2005.

### Macroeconomic performance and outlook (2006–07 and medium term)
- 2006 outcomes:
  - Real GDP grew by about 10 percent.
  - Inflation reached close to 12 percent in 2006.
  - External current account surplus about 31 percent of GDP in 2006.
  - Gross official reserves of the central bank (excluding government’s external assets) increased by about US$0.8 billion in 2006, to US$5.4 billion by year’s end.
  - Broad money growth about 40 percent in both 2005 and 2006.
  - Overall fiscal surplus remained at about 9 percent of GDP in 2006.
- 2007 expectations:
  - Qatar expected to continue to perform strongly in 2007, supported by high oil and gas prices and ongoing investments in the gas sector.
  - Inflation projected to remain high at about 12 percent in 2007.
  - External current account surplus projected to be about 33 percent of GDP.
  - Fiscal surplus projected at about 12 percent of GDP, considerably higher than budgeted.
  - Money growth expected to continue at a strong pace in 2007.
- Medium-term outlook:
  - Growth expected to be driven by the hydrocarbon sector and diversification into petrochemicals, financial and education services.
  - Fiscal and external positions expected to remain very comfortable.
  - Downside risks: lower oil prices and shortfalls in gas production, continued high inflation, deterioration of the security situation in the Gulf region.

### Fiscal accounts and composition (Table 1 and PIN narrative)
- Central government finances (in percent of GDP) — selected figures (Staff Report vs. Revised, Table 1):
  - Revenue 2007: 44.5 / 44.4
  - Hydrocarbon revenue 2007: 28.9 / 29.1
  - Expenditure 2007: 33.0 / 31.7
  - Overall fiscal balance 2007: 11.5 / 12.7
- PIN (2006 fiscal-year basis):
  - Total revenue 2006: 41.8 percent of GDP
  - Hydrocarbon revenue 2006: 26.9 percent of GDP
  - Total expenditure 2006: 32.7 percent of GDP
  - Overall fiscal balance 2006: 9.1 percent of GDP
- Authorities’ medium-term fiscal intent:
  - Expectation of overall fiscal surpluses of 15 percent of GDP on average (authorities’ statement).
  - Nonhydrocarbon deficit relative to nonhydrocarbon GDP expected to narrow to 14.6 percent in 2012 (one third its level in 2006).

### Financial sector, supervision, and market development
- Banking sector:
  - Prudential indicators described as strong.
  - Banks implementing risk management frameworks to implement Basle II during 2007.
  - Maturity mismatches may have grown due to long-term nature of loans for infrastructure and construction projects.
  - Need to closely monitor risks from rapid rise in real estate lending and banks’ exposure to new Initial Public Offering lending.
- Capital markets and regulation:
  - Equity markets volatile in 2006; Doha Securities Market experienced a significant correction after a 70 percent increase in 2005.
  - Directors supported plans to establish a single financial market and a unified regulator.
  - Interim recommendation: put in place a formal mechanism for the Qatar Financial Center (QFC) to report to the central bank on the financial situation of QFC-licensed institutions.
- Financial Sector Assessment Program (2007) follow-up:
  - Authorities started implementation of recommendations including refinements to licensing criteria, rules on ownership and control of banks, and assessments of country and operational risks.
  - Directors encouraged additional measures to develop the capital market.
  - Suggestion to monitor closely external borrowing associated with investment projects, possibly through a debt-monitoring unit.
- Anti-Money Laundering/Combating Financing of Terrorism:
  - Directors welcomed ongoing progress and encouraged compliance with the revised Financial Action Task Force standards.

### Exchange rate policy and monetary stance
- Directors’ view:
  - Qatari riyal appears in line with fundamentals; peg to the U.S. dollar has served the economy well by anchoring monetary conditions.
  - Peg to be maintained in the period leading to the prospective GCC monetary union; open-mindedness about the exchange rate regime under the prospective union.
  - A few Directors suggested consideration of moving to a more flexible exchange rate regime to help curb inflationary pressures.
- QCB action:
  - Deposit facility rate cut by 25 basis points on November 1, 2007.

### Policy recommendations and authorities’ actions
- Directors recommended:
  - Reducing inflation should be a priority.
  - Restraint in current expenditures and phasing development expenditures in line with absorptive capacity and medium-term priorities.
  - Temporary caps in housing rents to be accompanied by substantive actions to address underlying inflationary pressures.
  - Clear delineation of responsibilities among the central bank, Ministry of Finance, and new regulator for financial monitoring, oversight, crisis resolution, and payment systems; interim reporting mechanism for QFC to QCB.
  - Broaden non-oil revenue base; lower corporate income tax rate for foreign companies and introduce a corporate income tax rate for national companies with a view to unifying rates in the future.
  - Support planned tax changes including introduction of a Value Added Tax in the context of a GCC-wide initiative and reduction of exemptions under the tax holiday policy.
  - Use Fund technical assistance to strengthen statistical capacity.
- Authorities’ measures and views (Statement by A. Shakour Shaalan):
  - Cap of 10 percent on annual rent increases for a two-year period introduced as temporary.
  - Launching large infrastructure and housing projects to increase supply and expand domestic capacity.
  - Cautious management of oil and gas revenues to balance preserving fiscal surpluses with accommodating large-scale development projects.
  - Continued agenda to upgrade infrastructure and financial regulation to deepen financial markets.

### Surveillance and procedural changes
- Executive Board decision: move Qatar from a 24-month Article IV consultation cycle to a 12-month cycle to allow more frequent policy dialogue and better monitoring of financial sector developments.

*Source: IMF staff report, revisions and Public Information Notice (PIN) No. 07/141; Statement by A. Shakour Shaalan, Executive Director for Qatar, November 26, 2007.*

### 6. The fiscal position remained strong reflecting higher hydrocarbon revenue from rising

### _cr0805 - 6. The fiscal position remained strong reflecting higher hydrocarbon revenue from rising

### Fiscal position
- Overall fiscal surplus rose to above 9 percent of GDP in FY2006/07, aided by a reduction in development expenditures.
- Nonhydrocarbon revenue-to-nonhydrocarbon-GDP ratio picked up by around 2 percentage points to about 15 percent.
- Increase in salaries and outlays on goods and services occurred alongside higher hydrocarbon revenue from rising oil prices.
- For fiscal year 2007/08, preliminary estimates point to a higher overall surplus despite the projected increase in development expenditures.
- Authorities consider an increase in fiscal expenditure on infrastructure and housing as key to:
  - expand capacity,
  - reduce inflation in the future,
  - further economic diversification.

### Revenue diversification and tax policy
- Authorities plan to decrease the corporate income tax rate for foreign companies to attract foreign investments in the nonhydrocarbon sector.
- Considering introduction of a corporate income tax rate for national companies at a lower rate, with a view to unifying these rates in the future.
- Planned revenue-broadening measures include:
  - introduction of the VAT in the context of a GCC-wide initiative,
  - a hotel service tax,
  - a municipality property tax,
  - reduction of exemptions.
- Objective: broaden the non-oil revenue base to reduce dependence on the hydrocarbon sector.

### Monetary and exchange rate policies
- With complete capital mobility, monetary policy is mainly aimed at steering short term interest rates to sustain the currency peg and to manage short-term liquidity.
- Growth in monetary aggregates remained robust in 2006 reflecting:
  - large increases in net foreign assets of the banking system,
  - increased credit to finance private and high-return public investments.
- Authorities are vigilant about recent increases in consumer and real estate lending.
- Total size of loans remains consistent with total assets of the banking sector and manageable relative to the size of the economy.
- Increase in credit is facilitating financial deepening and accommodating financing needs for increased infrastructure investment over the medium term.
- Policy measures to slow credit growth and absorb liquidity:
  - Qatar Central Bank (QCB) introduced restrictions on bank credit and personal loans.
  - Ministry of Finance intends to issue treasury securities to help the QCB absorb liquidity and support development of a secondary market.
- Financial institutions and large corporations have increased foreign borrowing, largely geared towards export related activities and using secured debt instruments.
- External vulnerability from such borrowing is not considered a concern given Qatar’s strong net external creditor position; authorities will continue careful monitoring.
- Authorities remain committed to the U.S. dollar peg in the transition to the GCC monetary union in 2010.
  - Peg viewed as having anchored monetary conditions and appropriate at the current exchange level.
  - Authorities agree with staff’s assessment outlined in Box 2 of the report.
  - Acknowledge difficulty of applying the 2007 Surveillance Decision to oil producing countries because of high volatility of oil prices and high dependence on oil exports.
  - Remain open to discussing all options for the common exchange rate regime under the monetary union and view credibility of a pegged regime as important to investors.

### Financial sector issues
- Banking sector dominates the financial system and is benefiting from rapid economic expansion.
- Financial Sector Stability Assessment confirms comfortable levels of profits and capitalization.
- System weathered substantial correction in stock market prices in early 2006.
- Recent global credit crunch does not seem to have impacted the system, reflecting:
  - strong economic fundamentals,
  - enhanced regulation,
  - limited exposure to the U.S. subprime market.
- Stress testing results indicate the system is robust and banks as a whole could withstand severe shocks.
- Authorities have started implementing FSAP recommendations to:
  - upgrade financial system infrastructure,
  - align legal framework with best international practices.
- Priority to set up appropriate conditions for developing and deepening the capital market.
- Strategy adopted for a single Qatari financial market with a unified financial services regulatory authority and a multiyear integration plan.
  - Authorities acknowledge importance of a credible transition plan while maintaining confidence in a stable legal environment.

### Economic data and other issues
- Authorities prioritize improving the quality of economic data.
- Significant steps taken include participation in the GDDS and passage of the recent Statistics Law.
- Authorities recognize scope for further improvement in statistical quality.
- Plan to request further technical assistance from the Statistics Department to:
  - formulate a strategy to strengthen statistical capacity,
  - compile external financial accounts,
  - develop early warning indicators.
- Authorities attach high importance to the Fund’s advice and support and agree with staff’s recommendation that Qatar move to a 12-month Article IV consultation cycle.

*Source: Excerpt from the provided IMF content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0805.pdf_