Qatar: Staff Concluding Statement of the 2016 Article IV Mission
IMF News, January 3, 2017
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- Published: January 3, 2017
Context and outlook
- Qatar is effectively adjusting to the new reality of sustained lower energy prices; authorities' policy response has been adequate, underpinned by cuts to current expenditures and renewed efforts towards increasing non-oil revenues.
- Utility tariff increases: water and electricity tariffs increased from October 2015; gasoline price increase in January 2016 followed by implementation of a regular price adjustment mechanism in May 2016.
- Growth and inflation developments:
- Growth slowed to 1.7 percent (year-on-year) during the first half of 2016.
- Inflation reached 2.2 percent in October 2016 (year-on-year), in part due to higher domestic energy costs.
- Fiscal and external position:
- Central government surplus fell from 12.3 percent of GDP in 2014 to 1.2 percent in 2015.
- Government debt ratio moved from 32.3 to 34.9 percent of GDP between 2014 and 2015.
- Qatar raised a total of US$ 14.5 billion of external debt and issued US$ 2.6 billion of domestic bonds and Sukuk.
- Current account surplus reduced from 24 percent in 2014 to 8.4 percent of GDP in 2015.
- Banking sector: banks remain sound and well capitalized with a non-performing loan ratio of about 1.2 percent.
- Baseline projections:
- Real GDP growth expected to moderate to about 2.7 percent in 2016 and projected to reach 3.4 percent in 2017.
- Expansion in the non-hydrocarbon sector driven by World Cup-related spending and added output from the new Barzan gas project.
- Average inflation in 2016 expected to inch up to 3 percent.
- During 2017–18, subsidy cuts, increased public fees, a moderate recovery in global commodity prices and implementation of a VAT will drive inflation, which is expected to moderate back to low levels over the medium term.
- Fiscal and external balances projected to persist in the near term, with medium-term improvements as hydrocarbon prices recover slightly and fiscal adjustment advances.
Main risks
- External risks:
- Possibility of persistently lower hydrocarbon prices relative to the baseline assumption.
- Prospects of further rises in US interest rates may complicate efforts to bolster economic growth.
- Spillovers to the non-oil sector via slower government spending and declining banking liquidity.
- Domestic risks:
- Ongoing public investment program could cause near-term over-heating, potential resource misallocation, and reduced expenditure efficiency in the medium term.
- Financial sector risks: rising loan-to-deposit ratio possibly implying increased credit risk; some banks' expansion into riskier foreign jurisdictions could increase downside risks for asset quality.
- Overall financial risk assessment: moderate, as banks’ balance sheets remain strong.
Policy recommendations and progress
- Fiscal consolidation sequencing:
- Pace and composition should balance revenue increases and expenditure restraint in the medium term.
- Contain the wage bill, public service benefits, subsidies, and goods and services expenditure while preserving growth-promoting public investment.
- Implement GCC agreement on VAT by 2018; Qatar is taking actions to ensure smooth and timely implementation.
- Implement excises on tobacco and sugary drinks starting in 2017 in line with GCC-wide agreement to yield additional revenue.
- Explore complementary revenue measures, including broadening the corporate income tax base to include GCC companies.
- Deficit financing should support private sector credit growth without jeopardizing external debt sustainability; financing mainly through external borrowing and asset drawdown seems appropriate given risk-return tradeoffs.
- Public investment management:
- Good progress: new tender law and public finance law recently approved.
- Further efforts to enhance monitoring of public expenditures to improve efficiency and investment management.
- Liquidity management:
- Increase transparency of T-bill auctions and improve communication on QCB liquidity operations to help banks anticipate liquidity conditions and strengthen liquidity management.
- Exchange rate regime:
- Fixed peg to the U.S. dollar remains appropriate; should be periodically assessed over the medium term as the economy diversifies.
- Financial market development:
- Deepen domestic financial markets to promote saving and provide long-term, lower-cost funding; Qatar has continued domestic debt market development and issued bonds and Sukuk in September 2016 (secondary trading remains very limited).
- Banking supervision and macroprudential framework:
- Progress in implementing Basel III and related regulations, including liquidity ratios, counter-cyclical buffers, and buffers for systemically important domestic banks.
- Early Warning System is being developed; efforts to enhance AML/CFT framework are underway.
- Priority: further extend and strengthen early warning indicators to improve financial sector monitoring.
- Competitiveness and labor market:
- Qatar’s competitiveness indicators are the strongest in the GCC region but there is scope for improvement versus non-GCC peers.
- Measures implemented: strengthen private sector, promote SMEs, incentivize nationals to work in non-government jobs, accelerate contract enforcement and simplify business registration.
- Labor law reform: new labor law abolishing the “Kafala” came into effect in December 2016, making it easier for workers to switch jobs and exit the country.
- Statistics and transparency:
- Authorities started publishing quarterly GDP by expenditure and finalized the Foreign Investment Survey.
- Contemplating a new investment survey to address remaining gaps and improve IIP and BOP statistics.
- Progress on compiling fiscal data according to the GFSM 2001 and in subscribing to the SDDS.
Key macroeconomic indicators and selected figures (as presented)
- Nominal GDP (billions of Qatari Riyals): 2012: 680.1; 2013: 723.4; 2014: 750.7; 2015: 599.3; 2016 (Est.): 568.4; 2017 (Proj.): 624.7; 2018 (Proj.): 695.2; 2019 (Proj.): 738.9; 2020 (Proj.): 778.7; 2021 (Proj.): 818.1.
- Nominal hydrocarbon GDP (billions of Qatari Riyals): 2012: 394.7; 2013: 403.0; 2014: 394.2; 2015: 231.3; 2016: 162.5; 2017: 190.4; 2018: 209.7; 2019: 212.1; 2020: 214.8; 2021: 218.0.
- Nominal nonhydrocarbon GDP (share of overall GDP, percent): 2012: 42.0; 2013: 44.3; 2014: 47.5; 2015: 61.4; 2016: 71.4; 2017: 69.5; 2018: 69.8; 2019: 71.3; 2020: 72.4; 2021: 73.3.
- Real GDP (2013 prices, change percent): 2012: 4.7; 2013: 4.4; 2014: 4.0; 2015: 3.6; 2016 (Est.): 2.7; 2017 (Proj.): 3.4; 2018 (Proj.): 2.8; 2019 (Proj.): 2.3; 2020 (Proj.): 2.0; 2021 (Proj.): 1.6.
- CPI inflation (average): 2012: 3.1; 2013: 3.0; 2014: 2.6; 2015: 5.7; 2016 (Est.): 2.1.
- Brent crude oil price (U.S. dollars per barrel): 2012: 112.0; 2013: 108.8; 2014: 98.9; 2015: 52.4; 2016 (Est.): 44.0; 2017 (Proj.): 53.5; 2018 (Proj.): 55.1; 2019 (Proj.): 55.5; 2020 (Proj.): 56.7; 2021 (Proj.): 58.0.
- Crude oil production (thousands of barrels per day): 2012: 732.1; 2013: 697.8; 2014: 673.1; 2015: 636.4; 2016 (Est.): 651.2; 2017 (Proj.): 620.0; 2018 (Proj.): 583.6; 2019 (Proj.): 581.4; 2020 (Proj.): 563.8; 2021 (Proj.): 557.6.
- Natural gas production (millions of tons per year): 2012: 90.8; 2013: 91.8; 2014: 91.3; 2015: 94.0; 2016 (Est.): 91.2; 2017 (Proj.): 94.5; 2018 (Proj.): 97.5; 2019 (Proj.): 98.5; 2020 (Proj.): 100.1.
- Central government finances (percent GDP) — Revenue: 2012: 39.5; 2013: 47.6; 2014: 45.7; 2015: 42.7; 2016 (Est.): 25.4; 2017 (Proj.): 24.3; 2018 (Proj.): 24.0; 2019 (Proj.): 24.1; 2020 (Proj.): 23.5; 2021 (Proj.): 23.2.
- Central government finances (percent GDP) — Expenditure: 2012: 31.0; 2013: 28.3; 2014: 33.4; 2015: 41.5; 2016 (Est.): 34.5; 2017 (Proj.): 32.6; 2018 (Proj.): 30.1; 2019 (Proj.): 28.5; 2020 (Proj.): 27.5; 2021 (Proj.): 26.5.
- Central government fiscal balance (percent GDP): 2012: 8.6; 2013: 19.3; 2014: 12.3; 2015: -9.1; 2016 (Est.): -8.3; 2017 (Proj.): -6.1; 2018 (Proj.): -3.9; 2019 (Proj.): -3.3.
- Central government debt, gross (percent GDP): 2012: 37.2; 2013: 33.1; 2014: 32.3; 2015: 34.9; 2016 (Est.): 47.8; 2017 (Proj.): 51.3; 2018 (Proj.): 53.2; 2019 (Proj.): 55.0; 2020 (Proj.): 57.2; 2021 (Proj.): 57.7.
- Domestic credit to private sector (change percent): 2012: 13.5; 2013: 20.3; 2014: 19.7; 2015: 14.7; 2016 (Est.): 15.6; 2017 (Proj.): 14.0; 2018 (Proj.): 11.8; 2019 (Proj.): 10.8; 2020 (Proj.): 10.7.
- Exports (billions of U.S. dollars): 2012: 133.0; 2013: 133.3; 2014: 126.7; 2015: 77.3; 2016 (Est.): 58.8; 2017 (Proj.): 67.4; 2018 (Proj.): 71.2; 2019 (Proj.): 72.0; 2020 (Proj.): 72.6; 2021 (Proj.): 73.6.
- Imports (billions of U.S. dollars): 2012: -30.8; 2013: -31.5; 2014: -31.1; 2015: -28.5; 2016 (Est.): -29.2; 2017 (Proj.): -34.4; 2018 (Proj.): -36.0; 2019 (Proj.): -35.3; 2020 (Proj.): -35.1; 2021 (Proj.): -35.7.
- Current account balance (billions of U.S. dollars): 2012: 62.0; 2013: 60.5; 2014: 49.4; 2015: 13.8; 2016 (Est.): -1.3; 2017 (Proj.): 3.7; 2018 (Proj.): 6.0.
- Current account balance (in percent GDP): 2012: 33.2; 2013: 30.4.
- External debt (percent GDP): 2012: 86.4; 2013: 81.4; 2014: 80.7; 2015: 110.6; 2016 (Est.): 132.8; 2017 (Proj.): 131.5; 2018 (Proj.): 126.0; 2019 (Proj.): 125.0; 2020 (Proj.): 124.8; 2021 (Proj.): 125.1.
- Official reserves (billions U.S. dollars, excluding QIA assets): 2012: 42.2; 2013: 43.1; 2014: 33.3; 2015: 37.3; 2016 (Est.): 37.8; 2017 (Proj.): 38.3; 2018 (Proj.): 41.0.
- Social indicators: Per capita GDP (2015): $68,940; Life expectancy at birth (2013): 78.4; Population (December 2015): 2.4 million.
- Memorandum items: Credit rating (Moody's investor services): Aa2; Population growth (percent): 11.4; 9.3; 4.5; 0.0; Unemployment Rate (percent): 0.4.
IMF staff concluding statement, January 3, 2017.