Qatar: Staff Concluding Statement for the 2018 Article IV Mission

IMF News, March 5, 2018

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Published: March 5, 2018

Context

Following the 2014 oil price shock, export receipts and government revenues fell significantly; fiscal consolidation has been anchored mainly on reducing current expenditures, merger of ministries, and cuts in subsidies.
Tariffs of some utilities (water and electricity) have been increased and domestic fuel prices are now adjusted regularly in line with movements in international prices.
An infrastructure program in the amount of US$200 billion (equivalent to 121 percent of 2017 GDP) is underway to diversify the economy and prepare for the FIFA 2022 World Cup.
The direct economic and financial impact of the diplomatic rift is fading:
- Non‑resident deposits and resident private sector deposits fell by about US$40 billion following the rift; this decline was offset by central bank liquidity injections and public-sector deposits, particularly from Qatar Investment Authority (QIA).
- The decline in non‑resident liabilities of banks has abated; banks are mobilizing funding from other (non‑GCC) sources.
- High frequency financial indicators—CDS spreads, stock market, non-resident deposits—are improving after initial deterioration.
Pegged exchange rate regime remains sustainable; authorities launched an investigation into possible exchange and bond markets manipulation.

Recent Developments and Outlook

Findings for 2017 and early 2018:

Non-hydrocarbon real GDP growth is estimated to have moderated to about 4 percent in 2017.
Overall real GDP growth in 2017: 2.1 percent.
Real estate price index: fell by 11 percent in 2017 (year-on-year) after a cumulative increase of 53 percent during 2013–16.
Fiscal deficit: estimated to have narrowed to about 6 percent in 2017 from 9.2 percent of GDP in 2016.
Public debt: estimated at 54 percent of GDP as at end-2017.
International reserves: about US$15 billion at end-December 2017; increased to US$18 billion by end-January 2018.
Monetary conditions moderately tightened in 2017; growth of private-sector credit was broadly stable.
Macro-financial indicators are improving in 2018 compared to mid-2017.

Projections:

Overall GDP growth projected for 2018: 2.6 percent.
Growth during 2019–23 envisaged to average about 2.7 percent, supported by authorities’ intention to increase LNG production capacity by about 30 percent.
Inflation expected to peak at 3.8 percent in 2018 (impact of VAT being introduced during the second half of 2018) before easing to 2.2 percent in the medium term.
Fiscal and external balances projected to improve in the near and medium term due to continued expenditure restraint and higher hydrocarbon prices than in 2014–16.
Ongoing diplomatic rift and U.S. monetary policy normalization could dampen private sector credit growth.

Main Risks and Amplification Channels

Possibility of lower hydrocarbon prices leading to:
- Weaker government spending, slower non-oil growth, weaker credit growth, some deterioration in bank loan portfolio quality.
- Availability of government financial assets would help contain adverse impact; authorities’ stress tests indicate banks would maintain high capital adequacy under severe and protracted shocks.
Delayed implementation of key fiscal measures could lead to higher fiscal deficit, current account deficit, and public debt.
Tighter global financial conditions could raise funding costs and market risks for sovereign, banks, and corporates.
Escalation of the diplomatic rift could adversely affect external funding and growth; financial buffers available for additional support if needed.
Acceleration of structural reforms is important to maintain competitiveness and attract investment.

Fiscal Policy — Assessment and Recommendations

Findings:

The non-hydrocarbon primary balance consistent with intergenerational equity is the appropriate fiscal anchor for Qatar.
Estimated gap between the non‑hydrocarbon balance from this framework and the actual non‑hydrocarbon primary balance in 2017: about 6 percentage points of non-hydrocarbon GDP.
Gradual fiscal consolidation is appropriate given significant fiscal space (large fiscal and external buffers in the SWF) and favorable external borrowing conditions.

Policy recommendations:

Continue gradual fiscal consolidation over the medium term to ensure adequate saving of exhaustible hydrocarbon wealth.
Prioritize and sequence fiscal reforms to prevent reform fatigue.
2018 budget emphasis: new tax measures (VAT and excises), fees for government services, contained current expenditure, and efficient and higher capital expenditure.
Medium-term actions: limit growth of public wage bill and spending on goods and services, reduce public investment where appropriate.
Consider wage reform underpinned by public sector employment reform, alongside education and labor market reforms.
Continue energy and water price reforms; reduce energy subsidies gradually while protecting vulnerable segments.
Discuss planned fiscal efforts within a medium-term fiscal framework (MTFF) and prepare a medium-term budget framework (MTBF) to match MTFF with bottom-up costs and integrate into annual budget process.
Turn MTBF into a performance based medium-term expenditure framework over time.
Enhance asset-liability management framework to avoid crowding out private sector credit growth; consider macro‑financial implications in deficit financing choices.
Total public debt projected to reach 54.6 percent of GDP in 2018, with external component of 21.6 percent of GDP.
Authorities plan to use possible future fiscal surpluses to build QCB reserves and increase QIA asset holdings.

Monetary, Financial Sector, and Exchange Rate Policies

Liquidity management and financial stability:

Authorities enhancing liquidity management framework; emphasis on coordination and information sharing between central government, QCB, and QIA.
Improve liquidity monitoring and forecasting; deepen domestic financial markets to promote saving and offer borrowing and investment opportunities.
Banking system must adjust to a new funding model despite QCB liquidity injections and increased public-sector deposits.

Regulation and supervision:

Robust regulatory framework and effective supervision have helped ensure resilience.
Banking system characterized by high loan concentrations—particularly real estate loans—and connected lending.
Ongoing efforts to bolster macro-prudential regulations and strengthen consolidated supervision.
QCB introduced a new loan-to-deposit requirement of 100 percent effective January 2018.
QCB strengthening financial sector surveillance to detect emerging pressures related to liquidity, real estate, U.S. monetary policy normalization, and the diplomatic rift.

Basel IV and FinTech:

Basel IV, once adopted, will significantly increase risk-weights, impacting banks’ capital ratios, credit risk management, pricing, processes, and disclosure.
QCB could undertake an impact study of Basel IV on banks’ capital adequacy ratios to inform implementation speed.
Rise of FinTech will create regulatory challenges and opportunities; requires enhanced regulatory capacity.

Exchange rate:

The currency peg to the U.S. dollar remains appropriate and provides a clear monetary anchor.
The exchange rate regime should be periodically reviewed as the economy diversifies.
Staff assessment: external position is moderately weaker than level consistent with sufficient saving of exhaustible resource revenue; gradual fiscal adjustment could close the estimated current account gap in the medium term.
Reserves considered broadly adequate relative to the size of the sovereign wealth fund.

Private Sector Development, Economic Diversification, and Macroeconomic Statistics

Competitiveness and reforms:

Qatar placed 25th out of 137 in the World Economic Forum’s Global Competitiveness Index (2017–18), down from 18th in 2016–17.
World Bank’s Ease of Doing Business Index ranks Qatar 83rd out of 190 countries; below GCC average on indicators such as access to credit and contract enforcement.
Educational outcomes better than some GCC countries but with room for improvement.

Structural reforms and diversification:

Diplomatic rift has accelerated domestic food production and diversification initiatives but caution against import-substitution policies that create inefficiencies.
Privatization initiatives in sectors like health and education are positive steps.
Plans to set up special economic zones (SEZs) to stimulate diversification and FDI; careful design of tax incentives and labor policies recommended to avoid market distortions and reduce fiscal dependence on hydrocarbons.
Suggested improvements: reduce time and cost of commercial dispute settlement, strengthen insolvency mechanism.
Supreme Council for Economic Affairs and Investment approved the second national development strategy.
Ongoing work on majority foreign ownership of companies; announced visa-free entry program for 80 nationalities; draft law for permanent residency for foreigners who provide “outstanding services to Qatar”; worker dispute settlement committee and trust fund for workers facing bankruptcy.
Authorities considering establishing a minimum wage under the ILO framework and a new law to protect expatriate domestic help.

Macroeconomic statistics:

Progress on quarterly investment survey, compiling fiscal data according to GFSM 2001, and subscribing to the Special Data Dissemination Standard (SDSS).
QCB intends to compile and disseminate the Reserves Data Template fully in line with the Guidelines for a Data Template.
Enhanced fiscal reporting (frequency, timeliness, and analysis) recommended, including dissemination of financing components of central government operations, central government domestic debt, and external debt.

Key Table Highlights — Selected Macroeconomic Indicators (2013–23) (exact figures preserved)

Nominal GDP (billions of Qatari Riyals): 2013: 723.4; 2014: 750.7; 2015: 599.3; 2016: 555.0; 2017: 605.4; 2018: 675.6; 2019: 717.6; 2020: 735.2; 2021: 760.2; 2022: 798.8; 2023: 845.3.
Nominal hydrocarbon GDP (billions of Qatari Riyals): 2013: 403.0; 2014: 394.2; 2015: 231.3; 2016: 168.3; 2017: 198.5; 2018: 246.1; 2019: 262.0; 2020: 253.1; 2021: 249.2; 2022: 254.9; 2023: 266.6.
Nominal nonhydrocarbon GDP (share of overall GDP, percent): 2013: 44.3; 2014: 47.5; 2015: 61.4; 2016: 69.7; 2017: 67.2; 2018: 63.6; 2019: 63.5; 2020: 65.6; 2021: 68.1; 2022: 68.5.
Real GDP growth (2013 prices): 2013: 4.4; 2014: 4.0; 2015: 3.6; 2016: 2.2; 2017: 2.1; 2018: 2.6; 2019: 2.7; 2020: 2.9; 2021: (not shown), 2022: (not shown), 2023: (not shown).
CPI inflation (average): 2013: 3.2; 2014: 1.8; 2015: 0.4; 2016: 3.8; 2017: 3.5.
Brent crude oil price (U.S. dollars per barrel): 2013: 108.8; 2014: 98.9; 2015: 52.4; 2016: 44.0; 2017: 54.4; 2018: 67.8; 2019: 63.9; 2020: 61.1; 2021: 59.6; 2022: 59.1; 2023: 59.0.
Crude oil production (thousands of barrels per day): 2013: 697.8; 2014: 673.1; 2015: 636.4; 2016: 646.0; 2017: 607.0; 2018: 608.0; 2019: 615.1; 2020: 624.7; 2021: 632.9; 2022: 641.1; 2023: 652.1.
Natural Gas production (millions of tons per year): 2013: 91.8; 2014: 91.3; 2015: 94.0; 2016: 95.1; 2017: 98.0; 2018: 100.9; 2019: 103.0; 2020: 104.1; 2021: 105.0; 2022: 106.0; 2023: 107.0.
Central government finances (percent GDP) — Revenue: 2013: 47.6; 2014: 45.7; 2015: 42.8; 2016: 30.7; 2017: 26.3; 2018: 28.9; 2019: 32.3; 2020: 31.3; 2021: 29.8; 2022: 28.5; 2023: 28.1.
Central government finances (percent GDP) — Expenditure: 2013: 28.3; 2014: 33.4; 2015: 41.5; 2016: 39.9; 2017: 32.4; 2018: 30.1; 2019: 27.7; 2020: 27.1; 2021: 26.8; 2022: 25.8; 2023: 25.4.
Adjusted non-hydrocarbon primary balance (percent of non-hydrocarbon GDP) 5/: 2013: -50.2; 2014: -57.8; 2015: -57.3; 2016: -40.4; 2017: -31.4; 2018: -29.8; 2019: -25.9; 2020: -24.3; 2021: -23.4; 2022: -21.9; 2023: -21.6.
Central government debt, gross (percent GDP): 2013: 30.9; 2014: 24.9; 2015: 34.9; 2016: 46.5; 2017: 54.0; 2018: 54.6; 2019: 50.9; 2020: 47.2; 2021: 40.9; 2022: 37.8.
Official reserves 9/ (billions of U.S. dollars): 2013: 42.2; 2014: 43.1; 2015: 37.2; 2016: 31.7; 2017: 14.9; 2018: 21.6; 2019: 26.9; 2020: 36.3; 2021: 41.1; 2022: 44.6.

Social indicators and memoranda:

Per capita GDP (2016): $59,535.
Life expectancy at birth (2015): 78.7.
Population (December 2017): 2.6 million.
Credit rating (Moody's investor services): Aa2 (2013), Aa3 (2014).
Population growth (percent): 2013: 9.3; 2014: 10.0; 2015: 4.5; 2016: 0.25.
Local currency per U.S. dollar (period average) and Real effective exchange rate (change in percent) listed in memoranda (figures in table above).
Sources: Qatari authorities; and IMF staff estimates.
Notes: Table footnotes clarify data coverage and definitions, including GFSM 1986 presentation, and exclusions such as QIA assets from reserves.

IMF staff concluding statement for the 2018 Article IV Mission (March 5, 2018).