## _cr14108

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### 1. Spillovers from global events to Qatari financial markets — context and recent developments
- Qatar accounts for about 1/3 of global LNG trade.
- Per capita income: around $100,000.
- Expatriate workers: 1.75 million (total population is 2 million).
- Remittances: reached 6 percent of GDP.
- Moratorium on new hydrocarbon projects until at least 2015 to assess North Field production.
- Budget-financed investment projects estimated at $160 billion (80 percent of last year’s GDP) over 2014–21, supplemented by some $50 billion from public enterprises.
- Macro/institutional reforms underway: fiscal policy and institutions, financial regulation, macroprudential policies, liquidity management, development of the local debt market.
- Recent macro statistics and sectoral composition:
  - GDP growth: 13 percent in 2011; 6.2 percent in 2012; estimated around 6 percent in 2013; economy grew by 6.5 percent in 2013 per subsequent note.
  - Nonhydrocarbon sector: expanded by 10 percent in 2013; now accounts for almost one-half of the economy.
  - CPI inflation: 3.7 percent y-o-y in April 2013; 2.7 percent y-o-y in February 2014; core inflation excluding food, rent, and utilities was 1.6 percent in February 2014.
  - FY2012/13 budget surplus: 9 percent of GDP.
  - Underlying non-hydrocarbon fiscal balance: improved from -54 percent of non-hydrocarbon GDP in FY2010/11 to an estimated -46 percent of non-hydrocarbon GDP in FY2013/14 (ending March 2014).
  - Gross government debt as of March 2014: projected at 34 percent of GDP.
  - Current account: surplus of 32 percent of GDP in 2012; a high surplus expected in 2013; later data show current account surplus of 31 percent of GDP in 2013 and staff baseline projecting current account surplus could drop to 6½ percent of GDP by 2019 under pressures.
- Banking sector key indicators (end-2013 / latest available):
  - Tier 1 capital: 15 percent of risk-weighted assets.
  - Nonperforming loans (NPLs): below 2 percent.
  - Return on assets: 2 percent.
  - Liquid assets: around 50 percent of total assets.
  - Foreign funding of commercial banks: pared from 30 percent of total liabilities at peak in early 2012 to about 23 percent at present; foreign wholesale exposure about 10 percent of total liabilities (roughly ¾ accounted for by European banks).
  - Aggregate loan-to-deposit ratio: fell from 1.2 to 1.0 over the past year.

### 2. Main risks and scenarios
- Implementation risks related to infrastructure investments:
  - Likelihood: Low to Medium.
  - Expected impact: High — could raise inflation, cause delays and cost overruns, deliver lower-than-expected growth dividend, and raise nonperforming loans.
  - Recommended mitigants include enhancing QCB early warning systems and establishing a comprehensive public investment management system with rigorous project selection and appraisal procedures.
- Protracted slower global growth:
  - Likelihood: Low to Medium.
  - Expected impact: lower hydrocarbon prices and demand, reduced fiscal and external surpluses, slower QIA asset accumulation, deteriorated financing conditions for investment program.
  - Mitigant: large financial cushions and intensified diversification efforts.
- Surge in global financial market volatility (monetary policy exit in advanced economies):
  - Likelihood: Low to Medium.
  - Expected impact: higher financing costs, slower investment program, shrinking banks’ profit margins, liquidity pressures for some wholesale-funded banks.
- Renewed financial stress in the euro area:
  - Likelihood: Medium to High.
  - Expected impact: higher funding costs, reduced foreign credit availability, fall in QIA asset values and hydrocarbon prices, potential bank liquidity pressures; mitigants include QCB liquidity injections and reallocation of foreign assets into domestic banking system.
- Sustained decline in oil and gas prices due to excess capacity:
  - Likelihood: Medium.
  - Expected impact: lower fiscal and external surpluses, reduced QIA accumulation, constrained financing for investment program; mitigants: draw on financial cushions, accelerate diversification; structural features (low-cost LNG production, long-term gas contracts, diversion clauses) partially reduce risks.
- Tail-risk scenario — sanctions or temporary logistical sanctions from neighboring countries:
  - Geographic exposure implies susceptibility to logistical challenges for imports sourced through immediate neighbors and transshipment hubs; direct trade and financial exposures are limited.

### 3. Macroeconomic outlook (baseline) and sensitivity
- Growth projections and drivers:
  - GDP growth could stay around 6 percent in 2014 as pickup in public investments is offset by a modest decline in hydrocarbon output.
  - The new Barzan plant could help push growth above 7 percent in 2015.
  - Public investments expected to keep growth at roughly 6-7 percent over the medium term, with nonhydrocarbon growth remaining about 10 percent.
- Inflation projection: projected to stay benign at 3 to 4 percent going forward.
- Fiscal and external projections and sensitivities:
  - Projected tapering of fiscal and current account balances over time due to flat LNG production, falling crude oil output from mature fields, expected lower hydrocarbon prices (WEO assumptions see Brent falling from $110 a barrel at present to about $90 a barrel by 2019), and growing nominal expenditures.
  - IMF staff projections indicate the headline budget balance could turn into deficit by 2019, while the current account surplus could drop to 6½ percent of GDP.
- Oil price sensitivity and scenarios:
  - A plausible drop in oil prices relative to the baseline by $26.5 a barrel (the historical standard deviation of oil prices) could place the public debt ratio on an upward path.
  - Combined downside scenario with smaller-than-expected returns from public investment program and cost over-runs would amplify the increase in the debt ratio.
  - Alternative upside: supply disruptions elsewhere could keep hydrocarbon prices high, producing a favorable outcome.

### 4. Short-term policy space, buffers, and crisis tools
- Resource longevity and buffers:
  - "Qatar can continue hydrocarbon production at current rates for at least another 100 years."
  - Short-term spending unlikely to be affected by a drop in hydrocarbon prices or market volatility in the near term.
- Liquidity and financial-system interventions available:
  - QCB can inject liquidity through its lending window and repo operations.
  - Government can manage QIA and public enterprise portfolio allocations; precedent for equity injections and purchases of impaired assets exists.
- Strategic stocks: authorities build strategic stocks of food and construction materials to manage transport/logistical tail risks.

### 5. Managing the Public Investment Program (PIP) and fiscal institutions
- PIP scope: airport, port, metro, railway, roads, Lusail City, schools, hospitals, stadiums for 2022 FIFA Championship.
- Authorities’ approach: phase in investments, use high-level committees to identify/remove supply-chain bottlenecks; some big-ticket projects scaled down or phased.
- Staff recommendations if overheating or excessive credit growth occurs:
  - Smooth capital spending.
  - Deploy liquidity withdrawal operations.
  - Implement further macroprudential measures.
- Public investment management reforms:
  - Staff reiterated need for integrated public investment management: rigorous project selection and appraisal, comprehensive and transparent treatment of public programs in the budget, capacity building, deeper stakeholder cooperation.
  - MoF plans a public investment management unit and seeks technical assistance for a draft Public Financial Management law.
- Fiscal framework and breakeven guidance:
  - FY2014/15 budget circular requires ministries/agencies to provide indicative budget estimates until FY2016/17 and to share performance information.
  - Staff-estimated budget breakeven price: roughly $70 a barrel at present.
  - Effective State-level breakeven price including all State hydrocarbon profits: "in the ballpark of $50 a barrel."
  - Authorities using $65 a barrel hydrocarbon price in revenue projections.

### 6. Strengthening financial regulation, liquidity management, and market deepening
- Regulatory progress:
  - 2012 Central Bank law established Financial Stability and Risk Committee.
  - Three-year Strategic Plan for Financial Regulation unveiled December 2013; Basel III circular issued January 2014; Qatar granted emerging market status by MSCI effective May 2014.
- Macroprudential and supervisory tools:
  - In use/planned: loan-to-value and debt-to-income ratios; limits on real estate exposures, lending concentration, FX lending, and open FX positions; enhanced AML/CFT risk-based approach planned.
- Banking-system resilience:
  - QCB stress tests show system would withstand plausible shocks; per QCB Financial Stability Report (2013), NPLs would need to increase to 35 percent before system breaches required capital minimum.
  - Concentration risks: deposits and credit concentrated; asset quality exposure to high single party exposures.
  - Authorities considering reducing loan-to-deposit ratio to improve liquidity profile and asset quality.
  - Regional expansion of large Qatari banks could stretch risk management capacity; foreign funding reliance may rise when infrastructure projects pick up.
- Liquidity management and market functioning:
  - QCB measures: capping interest-bearing deposits at QCB, facilitating T-bill and T-bond issuance.
  - QCB started auctioning 3- and 5-year bonds.
  - Money market tightening in summer/fall 2013 partly reversed by large liquidity injection in January 2014.
  - Liquidity fell by QAR 13 billion between May and August 2013, then sharply rebounded in January 2014.
  - Staff recommended greater transparency, a well-structured liquidity management framework, and flexibility in T-bill/T-bond issuance volumes.
- Financial deepening measures:
  - Government issuing Riyal-denominated securities to develop domestic debt market.
  - Creation of domestic credit rating agency, expansion of credit bureau coverage, and public investment program providing opportunities for corporate bonds.

### 7. Debt sustainability and external sector (Appendix 1 highlights)
- Public DSA — baseline key macro variables (calendar year, in percent of GDP unless otherwise indicated):
  - Real GDP growth: 2014: 5.9; 2015: 7.1; 2016: 7.4; 2017: 7.2; 2018: 6.6; 2019: 6.4
  - Inflation: 2014: -0.3; 2015: -1.6; 2016: -1.2; 2017: 0.1; 2018: 0.9; 2019: 1.3
  - Primary Balance: 2014: 8.7; 2015: 5.9; 2016: 3.6; 2017: 2.1; 2018: 0.9; 2019: 0.0
  - Effective interest rate: 2014: 3.0; 2015: 3.8; 2016: 3.7; 2017: 3.8; 2018: 3.6; 2019: 3.5
- Alternative scenarios (selected primary balance and growth outcomes):
  - Oil Price Scenario (oil price lower by one standard deviation in 2015-19): Primary Balance series 2014: 8.7; 2015: 0.3; 2016: -1.6; 2017: -2.7; 2018: -3.6; 2019: -4.1
  - Growth-Spending Scenario (growth lower by 1 percentage point and non‑interest expenditure/GDP higher by 2 percentage points in 2015-19): Primary Balance series 2014: 8.7; 2015: 3.9; 2016: 1.6; 2017: 0.1; 2018: -1.1; 2019: -2.0
  - Combined Scenario (combines oil price and growth-spending scenarios + 10 percent of public enterprise debt gradually taken over by government): Primary Balance series 2014: 8.7; 2015: -3.1; 2016: -5.0; 2017: -6.0; 2018: -5.6; 2019: -6.1
- External debt baseline (percent of GDP) selected series:
  - External debt: 2009: 82.0; 2010: 87.4; 2011: 76.1; 2012: 83.9; 2013: 82.7; 2014: 75.6; 2015: 69.8; 2016: 64.4; 2017: 60.1; 2018: 56.0; 2019: 51.7
  - Change in external debt (percent of GDP): 2009: 32.5; 2010: 5.4; 2011: -11.2; 2012: 7.8; 2013: -1.2; 2014: -7.1; 2015: -5.8; 2016: -5.5; 2017: -4.2; 2018: -4.1; 2019: -4.4
  - External debt-to-exports ratio (percent): 2009: 160.4; 2010: 140.5; 2011: 107.3; 2012: 112.4; 2013: 111.5; 2014: 108.9; 2015: 109.6; 2016: 111.7; 2017: 113.3; 2018: 114.3; 2019: 112.7
  - Gross external financing need (US$ billions, 2009–2019 series includes values such as 19.1, 7.9, -11.0, -15.2, 16.3, 9.5, 10.7, 16.3, 18.7, 19.7, 21.5)
- External debt shocks used in sensitivity analysis:
  - Interest rate shock: permanent one-quarter standard deviation shock applied to real interest rate.
  - Growth shock: permanent one-quarter standard deviation shock applied to growth rate.
  - CA shock: permanent one-quarter standard deviation shock applied to current account balance.
  - Oil price shock: sustained one-standard deviation decline in oil prices (by $26.5 a barrel) applied over 2015-19.
  - Real depreciation shock: one-time real depreciation of 30 percent occurs in 2010.
  - Combined shock: permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.

### 8. Exchange rate assessment (Appendix 2 highlights)
- Exchange rate regime: peg to the U.S. dollar at QR 3.64 = $1.00 since July 2002 (unofficial peg since June 1980); Qatar has accepted obligations under Article VIII, Sections 2, 3, and 4(a).
- CGER-type and other approaches yield mixed assessments:
  - Equilibrium real exchange rate approach suggests about 11 percent undervaluation.
  - Macroeconomic balance approach indicates some 30 percent overvaluation (current account norm of 20.9 percent of GDP in 2019 vs projected underlying current account position of 6.5 percent of GDP).
  - External sustainability approach indicates the riyal is close to its equilibrium consistent with long-term fundamentals.
- Reported CGER-type outputs (as presented):
  - Current Account Balance (2019 proj.): 6.5
  - Current Account Norm: 20.9
  - Deviation from norm: -14.4
  - ER Over/undervaluation (percent): 30.0 (macroeconomic balance), -2.7 (other method), -11.4 (equilibrium approach)

### 9. Statistics, data needs, and capacity building
- Statistical improvements underway or planned:
  - MDPS finalizing Foreign Investment Survey to improve BoP and IIP statistics.
  - MDPS plans to begin publishing quarterly GDP by expenditure from mid-2014.
  - Further improvements needed in real estate sector statistics and household and corporate balance sheets to support QCB early warning system.
  - GCC Stat operational since June 2013 to collect regional statistical data and support joint projects.
  - GFMIS being implemented to enable GFSM2001 fiscal compilation.
- Data adequacy note (as of March 2014): economic data broadly adequate for surveillance but frequency, timeliness, and coverage can be improved—most affected areas: real GDP, financial accounts of BoP, IIP, and external debt statistics.

### 10. Policy recommendations and supervisory guidance (selected)
- Fiscal policy and public investment:
  - Continue building fiscal buffers; strengthen medium-term budgeting and MTBF.
  - Base annual budgets on realistic hydrocarbon price assumptions (staff notes $65 a barrel used by authorities; staff-estimated breakeven about $70 a barrel; State-level breakeven "in the ballpark of $50 a barrel").
  - Implement integrated public investment management: rigorous project selection, appraisal, monitoring, capacity building; set up Public Investment Management unit at MoF.
  - Smooth capital spending if overheating emerges; consider re-profiling and cuts to the PIP where necessary.
- Financial sector and monetary/market measures:
  - Strengthen financial regulation and macroprudential oversight (implement Strategic Plan measures).
  - Enhance QCB early warning system and joint risk-based analysis across regulatory agencies.
  - Improve liquidity management: greater transparency, well-structured framework, flexible T-bill/T-bond issuance volumes, close QCB–MoF coordination.
  - Deepen domestic debt markets via Riyal-denominated issuance, create domestic credit rating agency, expand credit bureau coverage.
  - Monitor lending standards, concentration risks, and cross-border banking activities; consider reducing loan-to-deposit ratios to improve liquidity and asset quality.
- Structural reforms and diversification:
  - Prioritize improvements in business environment, SME development, and educational quality.
  - Continue measures supporting SMEs (Qatar Development Bank, Enterprise Qatar), privatization, outsourcing, and human capital programs.
- Statistics and technical assistance:
  - Continue improving macroeconomic statistics; IMF technical assistance and diagnostic missions offered (e.g., macro-fiscal unit support).

### 11. Executive Board and staff appraisal (summary)
- Directors welcomed strong macroeconomic performance, solid non-hydrocarbon growth, and stable prices.
- Key guidance: remain vigilant about overheating; enhance public investment management; ensure timely implementation of fiscal reforms (limit spending overruns, medium-term budget focus, performance budgeting, macro-fiscal unit); base budgets on realistic hydrocarbon price assumptions; closely monitor banking risks and enhance early warning systems; prioritize business environment and education; continue statistical improvements.
- Recommendation: next Article IV consultation on standard 12-month cycle.

*Source: IMF staff report excerpt — "1. Spillovers from Global Events to Qatari Financial Markets" and accompanying sections from the provided content unit.*

### 1. Spillovers from Global Events to Qatari Financial Markets _____________________________________  17

### 1. Spillovers from Global Events to Qatari Financial Markets

### Context and structural features
- Qatar accounts for about 1/3 of global LNG trade and is a key supplier for Japan, South Korea, India, and the United Kingdom.
- Per capita income is around $100,000.
- Qatar has a sovereign wealth fund (Qatar Investment Authority, QIA) and is an important global financial investor, major labor importer, and donor.
- Population and remittances:
  - Expatriate workers: 1.75 million (total population is 2 million).
  - Remittances reached 6 percent of GDP.
- Energy and investment policy:
  - Moratorium on new hydrocarbon projects until at least 2015 to assess North Field production.
  - Budget-financed investment projects estimated at $160 billion (80 percent of last year’s GDP) over 2014–21, supplemented by some $50 billion from public enterprises.
- Macro and institutional reforms underway include fiscal policy and institutions, financial regulation, macroprudential policies, liquidity management, and development of the local debt market.

### Recent economic developments and key statistics
- Growth and sectoral composition:
  - GDP growth slowed from 13 percent in 2011 to 6.2 percent in 2012, largely due to the moratorium on North Field investments.
  - Growth is estimated to have remained around 6 percent in 2013.
  - Nonhydrocarbon sector expanded by 10 percent in 2013 and now accounts for almost one-half of the economy.
- Inflation and housing:
  - CPI inflation rose to 3.7 percent y-o-y in April 2013 due to rent pressures, then eased to 2.7 percent y-o-y in February 2014 as housing supply increased.
  - Core inflation excluding food, rent, and utilities was 1.6 percent in February 2014.
  - House prices have grown strongly since 2008–09; valuations appear broadly in line with fundamentals (per crude measures).
- Fiscal and external balances:
  - FY2012/13 budget surplus increased to 9 percent of GDP.
  - Underlying non-hydrocarbon fiscal balance improved from -54 percent of non-hydrocarbon GDP in FY2010/11 to an estimated -46 percent of non-hydrocarbon GDP in FY2013/14 (ending March 2014).
  - Gross government debt as of March 2014 is projected at 34 percent of GDP; net debt remains negative considering QIA’s large assets.
  - Current account recorded a surplus of 32 percent of GDP in 2012; another high surplus expected in 2013.
- Monetary and credit conditions:
  - Broad money and private sector credit have continued robust growth; public sector credit growth has slowed substantially.
  - The Ministry of Finance began requiring approval for new borrowing by public sector enterprises since October 2013.
- Banking sector soundness:
  - Tier 1 capital at 15 percent of risk-weighted assets at end-2013.
  - Nonperforming loans (NPLs) remain below 2 percent.
  - Return on assets at 2 percent.
  - Liquid assets around 50 percent of total assets.
  - Foreign funding of commercial banks pared back from 30 percent of total liabilities at its peak in early 2012 to about 23 percent at present; foreign wholesale exposure about 10 percent of total liabilities (roughly ¾ accounted for by European banks).
  - Aggregate loan-to-deposit ratio fell from 1.2 to 1.0 over the past year.

### Status of prior staff recommendations (2012 Article IV) — selected items
- Maintain policy mix to avoid overheating:
  - Inflation remains subdued; authorities monitoring price developments and congestion stresses; preparing short list of critical infrastructure projects.
- Continue building fiscal buffers; strengthen medium-term budgeting:
  - Authorities saving large budget surpluses; ministries prepare 3-year spending and revenue projections; Ministry of Finance setting up macro fiscal unit and Government Financial Management Information System.
- Introduce integrated public investment management:
  - Central Planning Office coordinates infrastructure investments; Ministry of Finance plans a Public Investment Management unit.
- Strengthen financial regulation to maintain stability:
  - 2012 Central Bank law established Financial Stability and Risk Committee; three-year Strategic Plan for Financial Regulation unveiled December 2013; Basel III circular issued January 2014.
- Avoid buildup of foreign borrowing:
  - Reliance on foreign borrowing declined substantially, partly owing to rising public sector deposits in the domestic banking system.
- Further improve liquidity management, support financial deepening:
  - QCB started auctioning 3- and 5-year bonds; Strategic Plan contains measures to support financial deepening.

### Macroeconomic outlook (baseline) and projections
- Growth:
  - GDP growth could stay around 6 percent in 2014 as pickup in public investments is offset by a modest decline in hydrocarbon output.
  - The new gas-to-liquids Barzan plant could help push growth above 7 percent in 2015.
  - Public investments expected to keep growth at roughly 6-7 percent over the medium term, with nonhydrocarbon growth remaining about 10 percent.
- Inflation:
  - Projected to stay benign at 3 to 4 percent going forward—a modest increase due to accelerating capital expenditures.
- Fiscal and external balances:
  - Projected to taper down significantly over time due to flat LNG production, falling crude oil output from mature fields, expected lower hydrocarbon prices (WEO assumptions see Brent falling from $110 a barrel at present to about $90 a barrel by 2019), and growing nominal expenditures.
  - IMF staff projections indicate the headline budget balance could turn into deficit by 2019, while the current account surplus could drop to 6½ percent of GDP.
- Public debt trajectory:
  - Gross government debt projected at 34 percent of GDP as of March 2014; public debt ratio expected to fall under baseline but could rise under downside shocks.

### Main domestic and global risks (summary)
- Implementation risks related to infrastructure investments:
  - Likelihood: Low to Medium.
  - Expected impact: High — could raise inflation, cause delays and cost overruns, deliver lower-than-expected growth dividend, and raise nonperforming loans. Recommended mitigants include enhancing QCB early warning systems and establishing a comprehensive public investment management system with rigorous project selection and appraisal procedures.
- Protracted slower global growth:
  - Likelihood: Low to Medium.
  - Expected impact: Slow global growth could undermine hydrocarbon prices and demand, reduce fiscal and external surpluses, slow QIA asset accumulation, and deteriorate financing conditions for the investment program. Large financial cushions likely mitigate impact; policymakers could intensify diversification efforts.
- Surge in global financial market volatility (monetary policy exit in advanced economies):
  - Likelihood: Low to Medium.
  - Expected impact: Financing costs could rise, slowing the investment program; banks’ profit margins would shrink; some wholesale-funded banks could face liquidity pressures. Large financial cushions and policy framework in place to mitigate.
- Renewed financial stress in the euro area:
  - Likelihood: Medium to High.
  - Expected impact: Funding costs of corporations and banks would increase, foreign credit availability would deteriorate, QIA asset value and hydrocarbon prices could fall, some banks may face liquidity pressures. QCB liquidity injections and reallocation of QIA and public enterprise foreign assets into the domestic banking system could counteract pressures.
- Sustained decline in oil and gas prices due to excess capacity:
  - Likelihood: Medium.
  - Expected impact: Fiscal and external surpluses and private sector confidence would fall, reducing QIA asset accumulation and public expenditures, and limiting financing for the investment program. Qatar could draw on large financial cushions and accelerate diversification. Low-cost LNG production, long-term gas contracts, and diversion clauses in gas contracts could partially reduce risks.
- Transport disruptions (geopolitical/regional risks, border closures):
  - Likelihood: Low to Medium.
  - Expected impact: Temporary land border closure would raise prices of certain items, including some foodstuffs and building materials; temporary blockage of the Strait of Hormuz would adversely affect hydrocarbon exports. Mitigants include releasing strategic stockpiles and using large financial cushions.
- Tail-risk scenario — sanctions or temporary logistical sanctions from neighboring countries:
  - Geographic exposure implies susceptibility to logistical challenges for imports sourced through immediate neighbors and transshipment hubs; direct trade and financial exposures are limited.

### Selected scenario and sensitivity notes
- Oil price sensitivity:
  - A plausible drop in oil prices relative to the baseline by $26.5 a barrel (the historical standard deviation of oil prices) could place the public debt ratio on an upward path.
  - A downside scenario that also assumes smaller-than-expected returns from the public investment program and cost over-runs would amplify the increase in the debt ratio.
  - Alternatively, supply disruptions among other oil producers could keep hydrocarbon prices high, yielding a more favorable scenario.

*Source: IMF staff report excerpt — "1. Spillovers from Global Events to Qatari Financial Markets."*

### 13.      Qatar has ample policy space to deal with unexpected circumstances in the short

### Qatar has ample policy space to deal with unexpected circumstances in the short term

### Short-term policy space and buffers
- Fiscal buffers and remaining natural resources are sizeable; "Qatar can continue hydrocarbon production at current rates for at least another 100 years."
- Short-term spending is unlikely to be affected by a drop in hydrocarbon prices or market volatility in the near term.
- Liquidity and financial-system interventions available:
  - The QCB can inject liquidity through its lending window and repo operations.
  - The government can manage portfolio allocations of the QIA and public sector enterprises to achieve similar objectives.
  - The government has precedent for equity injections and purchases of impaired assets (during the global financial crisis).
- Tail risks (e.g., transport disruptions) are managed by building strategic stocks of food and construction materials.

### Managing risks from the Public Investment Program
- Scope and composition of the program:
  - Projects include basic infrastructure (airport, port, metro, railway, and roads), real estate (including the new Lusail City), schools, hospitals, and stadiums for the 2022 FIFA Championship.
- Authorities’ approach and staff recommendations:
  - Authorities intend to phase in investment projects gradually and use high-level committees to identify and remove supply-chain bottlenecks; some big-ticket projects (metro, port, airport) have been scaled down or phased.
  - The mission recommended smoothing capital spending if signs of overheating emerge.
  - If excessive credit growth or risk-taking occurs, the mission recommended deploying liquidity withdrawal operations and further macroprudential measures.
  - Staff reiterated call for an integrated public investment management approach: rigorous project selection and appraisal, comprehensive and transparent treatment of public programs in the budget, capacity building, and deeper stakeholder cooperation.
- Implementation challenges:
  - Large-scale program has led to implementation delays and cost overruns.
  - Authorities are preparing a short list of critical projects; additional re-profiling and cuts may be necessary.
  - The MoF plans a public investment management unit and expressed interest in technical assistance for the draft Public Financial Management law.

### Enhancing the institutional framework for fiscal policy
- Medium-term budgeting and systems:
  - FY2014/15 budget circular requires ministries and agencies to provide indicative budget estimates until FY2016/17 and to share performance information about their programs.
  - The medium-term budget framework (MTBF), once fully effective, will help shield spending from revenue volatility and prevent expenditure targets from being exceeded.
  - The MoF plans to reduce growth in current expenditures, prioritizing health, education, and public investment.
  - The authorities are setting up a Government Finance Management Information System (GFMIS) to facilitate compilation of the GFSM2001 budget data.
- Macrofiscal unit and forecasting:
  - Authorities plan to operationalize the macro-fiscal unit to prepare macroeconomic forecasts, revenue and expenditure projections (including detailed forward-looking information about investment projects), and public debt forecasts.
  - The IMF is ready to field a diagnostic mission and help find a resident advisor for the unit.
- Fiscal stance and intergenerational equity:
  - Existing and projected fiscal deficits (measured by the nonhydrocarbon deficit excluding investment income in percent of nonhydrocarbon GDP) are somewhat lower than, but close to, deficits consistent with a constant real per capita annuity — implying the government saves sufficiently for future generations but does not over-save.
  - Staff projects improvement in the underlying non-hydrocarbon fiscal balance despite projected increases in capital expenditures—from -46 percent of non-hydrocarbon GDP at present to -26 percent of non-hydrocarbon GDP in 2019.
  - Authorities’ longer-term aspiration of fully financing the budget from nonhydrocarbon revenues, if implemented literally, would lead to over-saving since QIA asset accumulation would continue indefinitely.
- Hydrocarbon price assumptions and breakeven:
  - Credible annual budgets should be based on realistic hydrocarbon price assumptions (now $65 a barrel).
  - Staff-estimated budget breakeven price is roughly $70 a barrel at present.
  - Effective State-level breakeven price including all State hydrocarbon profits could be substantially lower, "in the ballpark of $50 a barrel."

### Strengthening financial regulation and monetary operations to maintain financial stability
- Regulatory progress and institutional arrangements:
  - The QCB Governor heads the Financial Stability and Risk Committee established by the 2012 Central Bank Law and chairs all three regulatory agencies.
  - The QCB has assumed responsibility for insurance supervision; joint risk-based analysis of the entire financial system is underway.
  - In December 2013, the three main regulatory agencies published their Strategic Plan for Financial Sector Regulation until 2016 (risk-based regulation, expanded macro-prudential oversight, strengthened market infrastructure, and consumer and investor protection).
  - Qatar has been granted emerging market status by MSCI, effective May 2014.
- Macroprudential and regulatory tools in use or planned:
  - Currently employed tools include loan-to-value and debt-to-income ratios, and limits on real estate exposures, lending concentration, FX lending, and open FX positions.
  - Authorities continue to implement macro-prudential measures and plan to enhance the risk-based approach to AML/CFT.
- Banking sector resilience and monitoring:
  - Banks remain well capitalized and liquid; QCB stress tests show resilience to plausible shocks due to high capital and liquidity buffers.
  - According to the QCB’s Financial Stability Report (2013), NPLs would need to increase to 35 percent before the banking system breaches the required capital minimum; most banks would withstand liquidity shocks partly due to availability of the QCB repo facility.
  - Concentration risks: deposits and credit are substantially concentrated; asset quality exposed to high single party exposures.
  - Authorities are considering reducing the loan-to-deposit ratio to improve liquidity profile and asset quality.
  - Regional expansion of the largest Qatari banks could stretch risk management capacity; foreign funding reliance could rise when infrastructure projects pick up.
  - Staff suggested enhancing the QCB’s early warning system to identify risks and links across all sectors; authorities plan to incorporate technical recommendations into the next Financial Stability Review.
- Liquidity management and market functioning:
  - QCB measures: capping commercial banks’ interest-bearing deposits at the central bank and facilitating issues of T-bills and T-bonds.
  - T-bill issuance proceeded at fixed nominal allotments; short-term T-bill rates showed some volatility.
  - Money market tightened during summer and fall of 2013 (partly due to the Syrian crisis and U.S. budget/debt ceiling negotiations); tightening was mostly reversed using a large liquidity injection in January 2014.
  - Liquidity fell by QAR 13 billion between May and August 2013, then increased but remained below previous levels through fall 2013 before sharply rebounding in January 2014.
  - Staff recommended greater transparency and a well-structured liquidity management framework; consider flexibility in setting T-bill and T-bond issuance volumes to reduce yield volatility.
  - Close coordination between the MoF and the QCB would enhance liquidity forecasting.
- Monetary policy regime:
  - Authorities and staff agreed the fixed exchange rate regime (peg to the U.S. dollar) remains appropriate.
  - The peg has anchored tradable prices and provided stability given dominance of dollar-denominated hydrocarbon exports.
  - Staff analysis: global share of Qatar’s non-hydrocarbon exports and share of imports in GDP broadly stable; composition of financial flows appears relatively stable based on incomplete data.
  - Real effective exchange rate is stronger than the long-term average, consistent with high hydrocarbon prices; three alternative CGER-type models produce widely-dispersed assessments, but no systematic exchange rate misalignment on balance.

### Deepening financial markets
- Rationale and government actions:
  - Deep, liquid domestic debt markets can fund infrastructure, enhance monetary transmission, and facilitate liquidity management.
  - Government issuing Riyal-denominated securities with stated objective of debt market development despite large fiscal surpluses.
  - Going forward, authorities will continue issuing Riyal-denominated government securities while trimming foreign borrowing and domestic loans.
- Supporting measures:
  - Creation of a domestic credit rating agency to support corporate bond issuance.
  - Public investment program provides opportunity for corporate bonds for revenue-generating projects.
  - Expanded coverage of the credit bureau is facilitating easier access to credit.
  - Strategic Plan for Financial Regulation envisages initiatives to improve consumer and investor protection and strengthen market infrastructure.

### Structural and data issues; labor market and diversification
- Competitiveness and structural gaps:
  - Qatar ranks 13th in the Global Competitiveness Index, the highest in the GCC region.
  - Qatar lags in SME development and educational quality.
  - The SME sector contributes only 10 percent of GDP, compared with almost 30 percent in the entire MENA region.
- Policy measures for diversification and human capital:
  - Authorities stepping up diversification via Qatar Development Bank and Enterprise Qatar (loan guarantees, SME feasibility studies).
  - MoF started outsourcing some activities and privatizing selected assets.
  - Efforts to improve educational curricula quality via Qatar Foundation activities, align with labor market needs, and expand study-abroad programs.
  - Authorities envisage gradual rotation of employment from low-productivity industries (construction) into higher-productivity knowledge-based sectors as private sector benefits from public investments.
  - Success of reforms critical for raising total factor productivity growth, which was negative in recent years.
- Labor market and expatriate worker issues related to 2022 FIFA Championship:
  - Vast infrastructure spending ahead of 2022 has spotlighted labor conditions for expatriate workers.
  - Working conditions of some construction workers and domestic help have attracted negative headlines and could affect availability and cost of hiring new workers.
  - Authorities committed to improvement: better enforcement of existing labor laws; issued a Welfare Charter for workers involved in FIFA-related projects.
  - Proposals submitted to tighten occupational safety rules and enhance cooperation with the International Labor Organization.

*Source: IMF staff report excerpt.*

### 28.      Considerable additional effort is necessary to improve macroeconomic statistics. The

### _cr14108 - 28.      Considerable additional effort is necessary to improve macroeconomic statistics. The

### Improvements in macroeconomic statistics
- MDPS is finalizing the Foreign Investment Survey, which should substantially improve the BoP and IIP statistics.
- MDPS plans to begin publishing quarterly GDP by expenditure from mid-2014.
- Further improvements needed in real estate sector statistics and household and corporate balance sheets to support development of the QCB’s early warning system.
- Close collaboration with GCC Stat could reinforce the authorities’ efforts to enhance macroeconomic statistics.
- GCC Stat became operational in June 2013 and collects statistical data across the GCC region and facilitates implementation of joint statistics projects.

### Staff appraisal — growth and external environment
- GDP could grow by 6 percent this year, driven by the non-hydrocarbon sector, and modestly accelerate going forward as public investment disbursements gather pace and the Barzan project comes on stream.
- Negative spillovers from the global slowdown have been limited owing to the tight liquefied natural gas market and supply disruptions among other oil producers.
- The ongoing emerging market turmoil has not affected local financial markets given strong fundamentals and modest international financial linkages.
- Main medium-term risk: possible sharp decline in oil and gas prices; offsetting possibility: oil prices could stay high if global supply disruptions persist.

### Inflationary pressures and monetary/financial policies
- Policymakers should remain vigilant about inflationary pressures.
- Recommended policy tools if overheating or excessive credit growth/risk-taking emerges:
  - Smooth capital spending.
  - Deploy liquidity withdrawal operations.
  - Implement further macroprudential measures.
- Supplementary policy action: identify and remove supply-chain bottlenecks.

### Public investment management
- Improving the public investment management process would help achieve better allocation of resources and higher returns on investment.
- Desirable features: an integrated approach including rigorous procedures for selection and appraisal of projects.
- Implementation requires substantial capacity building and deeper cooperation among various stakeholders.
- The authorities are planning to set up a public investment management unit at the MoF.

### Fiscal reforms
- Authorities are pursuing ambitious fiscal reforms:
  - Commitment to limiting spending over-runs.
  - A medium-term focus in the budget process.
  - Elements of performance budgeting.
  - Implementation of GFMIS.
- Going forward, annual budgets should be based on realistic hydrocarbon price assumptions and a more detailed multi-year expenditure framework.
- IMF stands ready to assist with setting up the macro-fiscal unit.

### Financial sector regulation and supervision
- Substantial progress: final Basel III circular issued; a three-year Strategic Plan for Financial Regulation unveiled.
- Strategic Plan agenda: risk-based regulation, macro-prudential oversight, strengthened investor and consumer protection, and financial infrastructure.
- Banks remain well capitalized, liquid, and profitable.
- Ongoing supervisory priorities:
  - Closely monitor lending standards, concentration risks, and cross-border activities of banks through an enhanced early warning system.
  - Improve liquidity management via more flexible auction volumes and close cooperation between the QCB and MoF.

### Diversification, financial deepening, and private sector development
- Public investments are being complemented by measures to support financial deepening and private sector development.
- Authorities’ actions:
  - Stepped up activities of the Qatar Development Bank and Enterprise Qatar (SME agency).
  - MoF has started outsourcing some activities and privatizing selected assets.
  - Strategic Plan for Financial Regulation envisages additional measures to strengthen investor and consumer protection.
  - Efforts to improve the quality of educational curricula.
- Additional measures to improve the business environment (for example, business registration) should be considered.

### Recommendation
- It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Box 1 — Spillovers from global events to Qatari financial markets (summary)
- Qatar has strengthened international financial linkages, supporting growth prospects, and has remained largely insulated from recent global shocks so far.
- Reactions to major global events:
  - U.S. tapering discussions: yields on Qatar’s USD-denominated bonds increased after last May’s announcement, but no observable response in domestic short-term rates and borrowing rates; drop in foreign fund inflows (from EPFR survey) were small in dollar terms; CDS spread rose modestly; stock market response muted compared with BRICS.
  - When the U.S. Federal Reserve surprised by holding off tapering in September, 10-year yield on the USD-denominated sovereign bond fell but Qatari Riyal short-term rates continued their upward drift.
  - Reaction to the December announcement of tapering was muted.
  - January emerging market turmoil: stock market broadly flat, USD-denominated yields fell; swings in domestic rates and excess reserves mostly related to QCB’s liquidity operation.
  - August Syria standoff and U.S. budget and debt ceiling negotiations: in August, stock market temporarily plunged by 10 percent, excess reserves fell, and short-term T-bill yields increased across the board; both long-term USD bond yield and CDS spreads increased somewhat; during U.S. budget/debt ceiling period, 3-month T-bill rates rose and excess reserves fell while stock market and CDS spreads remained relatively stable.
  - November announcement of a temporary agreement between the U.S. and Iran had no discernible effect on Qatar’s financial markets.
- Implications:
  - Financial spillovers could be important under certain circumstances, especially when underlying risk has direct implications for the value of Qatar’s hydrocarbon exports.
  - Evidence on potential impact of QE exit is ambiguous but points to risks of higher external borrowing costs for Qatar’s banks and corporations pursuing large-scale investment projects.
  - The January experience highlights the importance of sound domestic fundamentals and the possible role of liquidity operations in mitigating negative spillovers.

### Box 2 — Efficiency of Qatar’s public investment
- Qatar’s public investment efficiency appears similar to the efficiency of other wealthy nations, but could be improved further.
- Observations:
  - Qatar has attained relatively high infrastructure quality, with total investment similar to (or even lower than) some peers.
  - Qatar seems less efficient than advanced countries such as Canada, Norway, and Singapore.
- Recommendations:
  - Strengthening fiscal institutions could help boost returns on infrastructure investment.
  - Implement an integrated public investment management process for selection, appraisal, and monitoring of projects to achieve greater value for money.
  - Cost overruns pose a particular threat given the compressed timetable ahead of FIFA 2022.
- Empirical note:
  - The experience of Dubai is cited as a cautionary tale, with final costs exceeding contracted expenditures by 75 percent.
- Authorities are planning a public investment management unit at the MoF.

*International Monetary Fund — Staff appraisal and analysis from the provided content unit.*

### Box 3: Early Warning Exercise

### Box 3: Early Warning Exercise

### Overview
- There is scope for enhancing the QCB’s Early Warning System. The current methodology relies on financial indicators, indices (e.g. for real estate prices and bank stability), and stress tests for various risk categories (e.g. market, credit, liquidity and funding risks). The framework could be enhanced along the following dimensions:

### Balance Sheet Approach
- Cross-sectoral assessments of maturity, currency and capital structure mismatches would be desirable to identify intersectoral linkages and transmission of shocks.

### External Sector
- The framework should formally include assessment of the size and composition of cross border capital flows (e.g., debt vs. non-debt creating flows, public vs. private flows), and their impact on financial sector reserves and interest rates.

### Asset price and corporate sector
- The residential real estate market monitoring can be enhanced through data on housing vacancies, price-to-rent and price-to-income ratios, a quantitative model of house prices, and measures of lending standards.
- Indicators of housing permit, starts and completions, and more comprehensive data on household and corporate balance sheets would be desirable as well.

### Financial sector
- Establishing a credit growth threshold, enhancing the analysis of contagion, and deeper monitoring of bond market developments would be useful.

### Fiscal sector
- While less pressing given the strong fiscal buffers, the framework should include an assessment of longer-term fiscal position, financing risks, and volatility generated by swings in government spending.

- Additional recommendations are detailed in the accompanying Selected Issues Paper.

*Source: Box 3, "Early Warning Exercise," IMF staff report content.*

### Appendix 1. Public and External Debt Sustainability Analysis

### Appendix 1. Public and External Debt Sustainability Analysis

### Qatar Public Sector Debt Sustainability Analysis — Baseline and Alternative Scenarios
- Baseline scenario key macro variables (calendar year, in percent of GDP unless otherwise indicated):
  - Real GDP growth: 2014: 5.9; 2015: 7.1; 2016: 7.4; 2017: 7.2; 2018: 6.6; 2019: 6.4
  - Inflation: 2014: -0.3; 2015: -1.6; 2016: -1.2; 2017: 0.1; 2018: 0.9; 2019: 1.3
  - Primary Balance: 2014: 8.7; 2015: 5.9; 2016: 3.6; 2017: 2.1; 2018: 0.9; 2019: 0.0
  - Effective interest rate: 2014: 3.0; 2015: 3.8; 2016: 3.7; 2017: 3.8; 2018: 3.6; 2019: 3.5

- Oil Price Scenario (1/ Oil price is lower by one standard deviation in 2015-19) key variables:
  - Real GDP growth: same as baseline — 2014: 5.9; 2015: 7.1; 2016: 7.4; 2017: 7.2; 2018: 6.6; 2019: 6.4
  - Inflation: same as baseline — -0.3, -1.6, -1.2, 0.1, 0.9, 1.3 (2014–2019)
  - Primary Balance: 2014: 8.7; 2015: 0.3; 2016: -1.6; 2017: -2.7; 2018: -3.6; 2019: -4.1
  - Effective interest rate: 2014: 3.0; 2015: 3.8; 2016: 3.5; 2017: 3.5; 2018: 3.4; 2019: 3.3

- Growth-Spending Scenario (2/ Real GDP growth is lower by 1 percentage point and non‑interest expenditure-to-GDP ratio is higher by 2 percentage points than in the baseline in 2015-19) key variables:
  - Real GDP growth: 2014: 5.9; 2015: 6.1; 2016: 6.4; 2017: 6.2; 2018: 5.6; 2019: 5.4
  - Inflation: same as baseline
  - Primary Balance: 2014: 8.7; 2015: 3.9; 2016: 1.6; 2017: 0.1; 2018: -1.1; 2019: -2.0
  - Effective interest rate: 2014: 3.0; 2015: 3.8; 2016: 3.6; 2017: 3.7; 2018: 3.5; 2019: 3.4

- Combined Scenario (3/ combines oil price and growth‑spending scenarios, and assumes 10 percent of public enterprise debt is gradually taken over by the government) key variables:
  - Real GDP growth: 2014: 5.9; 2015: 6.1; 2016: 6.4; 2017: 6.2; 2018: 5.6; 2019: 5.4
  - Inflation: same as baseline
  - Primary Balance: 2014: 8.7; 2015: -3.1; 2016: -5.0; 2017: -6.0; 2018: -5.6; 2019: -6.1
  - Effective interest rate: 2014: 3.0; 2015: 3.8; 2016: 3.5; 2017: 3.4; 2018: 3.3; 2019: 3.3

- Notes on scenario definitions:
  - 1/ Oil price is lower by one standard deviation in 2015-19.
  - 2/ Real GDP growth is lower by 1 percentage point and the non-interest expenditure-to-GDP ratio is higher by 2 percentage points than in the baseline in 2015-19.
  - 3/ This scenario combines the oil price and the growth-spending scenarios, and in addition assumes that 10 percent of the public enterprise debt is gradually taken over by the government.
- Source for DSA calculations: IMF staff calculations.

### Underlying Assumptions and Public Debt Projections
- Gross Nominal Public Debt (in percent of GDP) projections are presented for 2012–2019 illustrating baseline and shocks (chart referenced in source).
- Public Gross Financing Needs (in percent of GDP) projections for 2012–2019 are shown for baseline and scenarios (chart referenced in source).

### External Debt Sustainability: Bound Tests and Scenario Shocks
- External debt in percent of GDP and bound tests include:
  - Baseline historical average values and scenario projections (figures in boxes represent average projections for respective variables).
  - Individual shocks are permanent one-half standard deviation shocks.
- Specific scenario shocks described:
  - Interest rate shock: permanent one-quarter standard deviation shocks applied to real interest rate.
  - Growth shock: permanent one-quarter standard deviation shocks applied to growth rate.
  - Current account (CA) shock: permanent one-quarter standard deviation shocks applied to current account balance.
  - Oil price shock: a sustained one-standard deviation decline in oil prices (by $26.5 a barrel) applied to WEO crude oil prices over 2015-19.
  - Real depreciation shock: one-time real depreciation of 30 percent occurs in 2010.
  - Combined shock: permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.
- Historic and baseline markers: Baseline external debt shown at 52 (percent of GDP) in charts; historical and scenario paths illustrated for 2009–2019 (chart referenced).

### External Debt Sustainability Framework, 2009–19 (Selected figures, in percent of GDP unless otherwise indicated)
- Baseline: External debt (percent of GDP):
  - 2009: 82.0
  - 2010: 87.4
  - 2011: 76.1
  - 2012: 83.9
  - 2013: 82.7
  - 2014: 75.6
  - 2015: 69.8
  - 2016: 64.4
  - 2017: 60.1
  - 2018: 56.0
  - 2019: 51.7
- Change in external debt (percent of GDP):
  - 2009: 32.5
  - 2010: 5.4
  - 2011: -11.2
  - 2012: 7.8
  - 2013: -1.2
  - 2014: -7.1
  - 2015: -5.8
  - 2016: -5.5
  - 2017: -4.2
  - 2018: -4.1
  - 2019: -4.4
- Identified external debt-creating flows (sum of components) (percent of GDP):
  - 2009–2019 series includes values such as -0.8 (2009), -35.2 (2010), -50.4 (2011), -39.9 (2012), -30.5 (2013), -27.0 (2014), -23.0 (2015), -18.2 (2016), -14.4 (2017), -11.3 (2018), -9.0 (2019)
- Current account deficit, excluding interest payments (percent of GDP):
  - 2009: -7.6
  - 2010: -20.0
  - 2011: -31.0
  - 2012: -33.2
  - 2013: -30.3
  - 2014: -26.5
  - 2015: -22.1
  - 2016: -16.3
  - 2017: -12.7
  - 2018: -10.3
  - 2019: -7.8
- Deficit in balance of goods and services (percent of GDP):
  - 2009: -22.1
  - 2010: -38.4
  - 2011: -45.4
  - 2012: -46.2
  - 2013: -44.8
  - 2014: -39.9
  - 2015: -34.0 (noted as "-3 4.0" in source — preserved as presented)
  - 2016: -27.8
  - 2017: -23.7
  - 2018: -20.4
  - 2019: -17.8
- Exports and imports (percent of GDP): exports and imports series appear in the table; exports include values such as 51.1, 62.2, 71.0, 74.7, 74.2, 69.5, 63.7, 57.6, 53.1, 49.0, 45.8 (2009–2019); imports include series with values including 29.0, 23.8, 25.5, 28.4, 29.4, 29.5, 29.7, 29.9, 29.4, 28.6, 28.1 (2009–2019).
- Net non-debt creating capital inflows (negative indicates outflows):
  - 2009: -3.1
  - 2010: 1.7
  - 2011: 3.6
  - 2012: 0.8
  - 2013: 2.9
  - 2014: 3.0
  - 2015: 2.6
  - 2016: 1.4
  - 2017: 1.1
  - 2018: 1.0
  - 2019: 0.8
- Automatic debt dynamics (percent of GDP) contributions, 2009–2019 (series includes 9.9, -17.0, -22.9, -7.5, -3.2, -3.5, -3.5, -3.3, -2.7, -2.0, -2.0):
  - Contribution from nominal interest rate (percent): includes values 1.0, 0.9, 0.7, 0.8, 1.0, 1.1, 1.6, 1.6, 1.6, 1.7, 1.3
  - Contribution from real GDP growth (percent): includes values -7.0, -10.7, -8.3, -4.2, -4.9, -4.6, -5.1, -4.9, -4.3, -3.7, -3.3
  - Contribution from price and exchange rate changes (percent): examples include 15.8, -7.2, -15.4, -4.0, 0.7 (table continues with ellipses in source)
- Residual, including change in gross foreign assets (percent of GDP):
  - 2009: 33.3
  - 2010: 40.6
  - 2011: 39.1
  - 2012: 47.7
  - 2013: 29.3
  - 2014: 20.0
  - 2015: 17.2
  - 2016: 12.8
  - 2017: 10.1
  - 2018: 7.1
  - 2019: 4.7
- External debt-to-exports ratio (percent):
  - 2009: 160.4
  - 2010: 140.5
  - 2011: 107.3
  - 2012: 112.4
  - 2013: 111.5
  - 2014: 108.9
  - 2015: 109.6
  - 2016: 111.7
  - 2017: 113.3
  - 2018: 114.3
  - 2019: 112.7
- Gross external financing need (in billions of US dollars) 4/ (defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period):
  - Presented series in source includes values such as 19.1, 7.9, -11.0, -15.2, 16.3, 9.5, 10.7, 16.3, 18.7, 19.7, 21.5 (corresponding years 2009–2019)
- Debt-stabilizing non-interest current account (long-run constant balance that stabilizes the debt ratio) reported as -1.7 (final column in table).

- Key macroeconomic assumptions underlying baseline (selected historical averages and projections):
  - Real GDP growth (in percent): historical and projections include values 12.0, 16.7, 13.0, 6.2, 6.1, 14.3, 6.5, 5.9, 7.1, 7.4, 7.2, 6.6, 6.4 (series across years)
  - GDP deflator in US dollars (change in percent): series includes -24.2, 9.6, 21.3, 5.6, -0.8, 9.7, 15.0, -0.3, -1.6, -1.2, 0.1, 0.9, 1.3
  - Nominal external interest rate (percent): series includes 1.8, 1.5, 1.1, 1.2, 1.3, 3.4, 2.3, 1.5, 2.2, 2.5, 2.6, 3.0, 2.6
  - Growth of exports (US dollar terms, in percent): series includes -29.3, 55.6, 56.4, 18.0, 4.6, 29.3, 26.3, -1.2, -3.3, -4.0, -1.2, -0.8, 0.9
  - Growth of imports (US dollar terms, in percent): series includes -12.3, 4.7, 47.4, 24.9, 8.9, 26.6, 24.6, 6.0, 6.1, 6.6, 5.5, 4.6, 6.0
  - Current account balance, excluding interest payments (percent of GDP): series includes 7.6, 20.0, 31.0, 33.2, 30.3, 22.4, 8.0, 26.5, 22.1, 16.3, 12.7, 10.3, 7.8
  - Net non-debt creating capital inflows: series includes 3.1, -1.7, -3.6, -0.8, -2.9, 0.6, 3.0, -3.0, -2.6, -1.4, -1.1, -1.0, -0.8

- Methodological notes:
  - 1/ Automatic debt dynamics derived as formula [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation, and a = share of domestic-currency denominated debt in total external debt.
  - 2/ Contribution from price and exchange rate changes defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock.
  - 3/ For projection, line includes impact of price and exchange rate changes.
  - 4/ Gross external financing needs defined as current account deficit plus amortization on medium- and long-term debt plus short-term debt at end of previous period.
  - 5/ Scenario with key variables at their historical averages: key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
  - 6/ Debt-stabilizing non-interest current account: long-run constant balance that stabilizes the debt ratio assuming key variables remain at levels of the last projection year.

### Exchange Rate Assessment Models (Appendix 2) — CGER-type and Other Approaches
- Empirical findings:
  - Qatar’s real exchange rate (REER) has been stable during the past two years, depreciating 1.1 percent since 2011 while the nominal effective exchange rate (NEER) appreciated about 2.2 percent.
  - Equilibrium real exchange rate approach suggests about 11 percent undervaluation. This method directly estimates the monthly equilibrium REER using a co-integration relationship between the real exchange rate and real oil price.
  - Macroeconomic balance approach indicates some 30 percent overvaluation, based on estimates of the equilibrium current account (norm) from fundamentals including non-hydrocarbon fiscal balance, hydrocarbon reserves, old-age dependency ratio, population growth rate, initial net foreign assets, oil trade balance, growth rate of real per capita GDP, and relative income. The method yields a current account norm of 20.9 percent of GDP in 2019. Contrasting the norm to the projected “underlying” current account position in 2019 (6.5 percent of GDP) points to an overvalued riyal.
  - External sustainability approach indicates the riyal is close to its equilibrium consistent with long-term fundamentals. The NPV approach suggests the projected current account balance is broadly in line with fundamentals, with sensitivity to parameter values noted.
- Results of CGER-type analysis (selected outputs reported in source):
  - Current Account Balance (2019 proj.): 6.5
  - Current Account Norm: 20.9
  - Deviation from norm: -14.4
  - ER Over/undervaluation (percent): 30.0 (macroeconomic balance), -2.7 (other method), -11.4 (equilibrium approach) — as presented in the source table.

### Data, Technical Cooperation, and Institutional Relations (Selected substantive items)
- Exchange rate arrangement:
  - The Qatari riyal has been pegged to the U.S. dollar at QR 3.64 = $1.00 since July 2002, following an unofficial peg since June 1980. Qatar has accepted obligations under Article VIII, Sections 2, 3, and 4(a).
- Relations with IMF and technical assistance (selected entries, dates preserved as presented):
  - Membership: Joined: 09/08/72; Article VIII, 06/04/73
  - Quota: 302.6 SDR Million; Percent Quota: 100.00
  - Fund holdings of currency: 197.18 SDR Million; Percent: 65.16
  - Reserve position in Fund: 105.42 SDR Million; Percent: 34.84
  - SDR Department net cumulative allocation: 251.40 SDR Million; Percent Allocation: 100.00
  - Holdings: 271.14 SDR Million; Percent: 107.85
  - Last Article IV Consultation: discussions in Doha in November 2012; concluded by Executive Board on January 11, 2013. Qatar moved to a 12-month Article IV consultation cycle in 2007.
  - Technical Assistance (selected): STA April 2000 Real Sector Statistics; STA May 2001 Balance of Payments Statistics; STA January 2005 Multisector Statistics; STA April 2006 Government Finance Statistics; LEG November 2006 AML/CFT Pre-assessment; STA April 2007 GDDS Assessment; LEG October 2009 AML/CFT Long-Term Advisor; STA October 2010 Balance of Payments Statistics; STA September 2012 Coordinated Portfolio Investment Survey; LEG March 2014 AML/CFT follow up; FAD April 2014 (forthcoming) Macro-fiscal unit.
- Statistical issues and data adequacy (as of March 2014):
  - General: Economic data broadly adequate for surveillance but frequency, timeliness, and coverage can be improved — most affected areas: real GDP, financial accounts of BoP, IIP, and external debt statistics.
  - National Accounts: Quarterly GDP at current and constant prices published; MDPS plans to publish quarterly GDP by expenditure from summer 2014; changing base year (currently 2004) under consideration.
  - Price statistics: Monthly CPI published; rent component has limited geographic coverage and reflects new contracts only; household income and expenditure survey 2012-13 being finalized to update CPI weights.
  - Government Finance Statistics: GFMIS being implemented to enable accrual fiscal accounts per GFSM 2001; current GFSM2001 figures are estimated by staff from modified cash data.
  - Monetary statistics: QCB and commercial bank monetary data are generally timely and high quality; QCB reports monthly to STA with about three-week lag.
  - Balance of Payments: Quarterly BoP published in IFS since TA in 2010; financial account coverage improved for major public corporations and authorities; completion of Foreign Investment Survey for 2010-12 expected to enable comprehensive IIP compilation.
  - External debt: Detailed medium- and long-term external debt data provided during Article IV missions; debt office at Ministry of Finance collating public and public enterprise debt; public external debt data published on QCB website.
- Data dissemination and standards:
  - Qatar a GDDS participant since December 2005; GDDS mission April 2007 updated GDDS Summary Table II and assessed dissemination practices relative to SDDS; staff assisted with National Summary Data Page (NSDP) and Advance Release Calendar (ARC).

*Source: IMF staff report materials as presented in the Appendix 1 and Appendix 2 content unit.*

### 1. This note provides information that has become available since the staff report was

### _cr14108 - 1. This note provides information that has become available since the staff report was

### Recent macroeconomic developments and outlook
- The economy grew by 6.5 percent in 2013, almost ½ percentage point more than estimated by staff.  
- GDP growth decelerated to 5.6 percent year-on-year in Q4/2013.  
- Staff maintains its 2014 growth projection at about 6 percent.  
- In a separate data release, Qatar recorded a current account surplus of 31 percent of GDP last year, slightly higher than expected by staff.  
- Consumer price inflation remained subdued at 2.6 percent year-on-year in March.  
- The baseline macroeconomic outlook: GDP growth could stay around 6 percent in 2014, with public investments keeping growth around 6–7 percent over the medium term.  
- Inflation is projected to stay benign at 3 to 4 percent going forward.

### Fiscal policy, budget blueprint, and public finances
- The authorities unveiled the budget blueprint for FY2014/15.  
- Nominal expenditures are projected to grow by a modest 3¾ percent from the last year’s budget plan.  
- Priority given to major infrastructure projects (up by 17 percent), health and education.  
- Current spending and minor capital expenditures are expected to be curtailed.  
- Revenue projections continue to assume the $65 a barrel oil price, leading to substantial underestimation of the projected budget surplus.  
- A more detailed assessment is not possible at this time due to lack of comprehensive information, including absence of budget results for the fiscal year that has just ended.  
- Authorities’ fiscal strategy and commitments:
  - Saving large fiscal surpluses to strengthen buffers and save for future generations.
  - Introducing a medium-term focus into the budget process; 2014/15 draft budget required ministries/agencies to provide indicative budget estimates for three years and to share performance information.
  - Setting up a Government Finance Management Information System.
  - Establishing a macro-fiscal unit (to benefit from Fund technical assistance).

- Selected public finance indicators (percent of GDP, fiscal year basis):  
  - Total revenue: 31.4 (2010), 34.6 (2011), 40.1 (2012), 41.5 (2013), 38.8 (2014), 35.7 (2015)  
  - Hydrocarbon revenue: 19.5 (2010), 24.1 (2011), 25.0 (2012), 24.6 (2013), 22.5 (2014), 20.0 (2015)  
  - Other revenue: 11.9 (2010), 10.5 (2011), 15.0 (2012), 16.9 (2013), 16.4 (2014), 15.7 (2015)  
  - Total expenditure and net lending: 28.9 (2010), 28.2 (2011), 30.6 (2012), 30.4 (2013), 31.2 (2014), 30.9 (2015)  
  - Current expenditure: 20.0 (2010), 20.3 (2011), 23.3 (2012), 22.1 (2013), 22.0 (2014), 22.0 (2015)  
  - Wages and salaries: 4.6 (2010), 4.6 (2011), 4.9 (2012), 5.6 (2013), 5.6 (2014), 5.6 (2015)  
  - Capital expenditure: 8.9 (2010), 7.9 (2011), 7.3 (2012), 8.2 (2013), 9.2 (2014), 8.9 (2015)  
  - Overall fiscal balance (deficit -): 2.5 (2010), 6.4 (2011), 9.5 (2012), 11.1 (2013), 7.6 (2014), 4.9 (2015)

### External sector and reserves
- Exports of goods and services (billions of U.S. dollars): 77.8 (2010), 121.7 (2011), 143.6 (2012), 148.1 (2013), 148.5 (2014), 143.6 (2015)  
- Imports of goods and services (billions of U.S. dollars): -29.7 (2010), -43.8 (2011), -54.7 (2012), -59.0 (2013), -63.1 (2014), -67.0 (2015)  
- Current account (billions of U.S. dollars): 23.8 (2010), 52.0 (2011), 62.3 (2012), 62.6 (2013), 54.3 (2014), 46.1 (2015)  
- Current account in percent of GDP: 19.0 (2010), 30.3 (2011), 32.4 (2012), 30.9 (2013), 25.4 (2014), 20.5 (2015)  
- Central Bank reserves, gross (billions of U.S. dollars): 30.7 (2010), 16.3 (2011), 32.7 (2012), 41.7 (2013), 46.2 (2014), 49.3 (2015)  
- Central Bank reserves in months of imports of goods and services (next 12 months): 8.4 (2010), 3.6 (2011), 6.6 (2012), 7.9 (2013), 8.3 (2014), 8.3 (2015)

### Monetary, inflation, and liquidity
- CPI inflation (average): -2.4 (2010), 1.9 (2011), 1.9 (2012), 3.1 (2013), 3.5 (2014), 3.5 (2015)  
- Broad money annual change (percent): 23.1 (2010), 17.1 (2011), 22.9 (2012), 19.6 (2013)  
- Credit to private sector annual change (percent): 7.6 (2010), 19.2 (2011), 13.5 (2012), 13.5 (2013)  
- Exchange rates (Riyals/US $): 3.6 (2010), 3.6 (2011), 3.6 (2012), 3.6 (2013)

### Financial sector regulation, banking soundness, and market development
- Authorities have advanced the financial regulatory agenda: establishing an umbrella regulatory body, issuance of the final Basel III circular, and publishing a Strategic Plan for Financial Regulation.  
- Banking sector posture:
  - Banks remain well capitalized, liquid, and profitable.
  - Sector meets Basel III requirements on capital, liquidity and leverage ratios.
  - Risks identified: deposits and credit are concentrated; asset quality exposed to risks from high single party exposures.
  - Authorities are considering reducing the loan-to-deposit ratio to improve liquidity profile and asset quality.
- Macroprudential and liquidity management measures recommended:
  - Deploy liquidity withdrawal operations and further macroprudential measures in case of excessive credit growth or risk-taking.
  - Improve liquidity management and deepen domestic debt markets by issuing domestic currency-denominated securities and trimming foreign borrowing.
- Recent market-deepening measures: launching of exchange-traded funds by the end of April, setting-up domestic credit rating agency, and expanding the coverage of the credit bureau.

### Public investment management and diversification
- Main risks identified: near-term overheating and medium-term over-capacity from large public investment program; possibility of a sharp decline in oil and gas prices.  
- Authorities’ actions to manage infrastructure program risks:
  - Intend to phase in investment projects.
  - Established the Central Planning Office to oversee infrastructure investments.
  - Setting up the Public Investment Management unit at the Ministry of Finance.
- Executive Directors’ recommendations on public investment:
  - Enhance the public investment management framework and improve efficiency of public spending.
  - Adopt a comprehensive approach including rigorous procedures for selection and appraisal of projects, capacity building, and deeper cooperation among stakeholders.
- Economic diversification actions:
  - National Development Strategy 2011-16 guiding diversification toward non-hydrocarbon sectors.
  - Support for small and medium-sized enterprises including loan guarantees and feasibility studies.
  - Measures to improve quality of education and raise total factor productivity.

### Executive Board assessment and recommendations
- Directors welcomed Qatar’s continued strong macroeconomic performance, solid non-hydrocarbon growth, and stable prices.  
- Key guidance from Directors:
  - Remain vigilant about overheating; if signs emerge, smooth capital spending and deploy liquidity withdrawal and macroprudential measures.
  - Enhance public investment management; set up a Public Investment Management Unit (welcomed).
  - Ensure timely implementation of fiscal reforms (limit spending overruns, medium-term budget focus, performance budgeting, macro-fiscal unit).
  - Base annual budgets on realistic hydrocarbon price assumptions and adopt a more detailed multi-year expenditure framework.
  - Continue close monitoring of lending standards, concentration risks, and cross-border banking activities; enhance early warning systems.
  - Prioritize improving the business environment and the quality of education.
  - Continue improvements in macroeconomic statistics.

*Source: IMF Executive Board Concludes 2014 Article IV Consultation with Qatar, Press Release No. 14/197, May 6, 2014.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14108.pdf_