## Qatar: Staff Concluding Statement for the 2018 Article IV Mission

_IMF News, March 5, 2018_

## Source details

**Canonical URL:** [Qatar: Staff Concluding Statement for the 2018 Article IV Mission](https://www.imf.org/en/news/articles/2018/03/05/ms030518-qatar-staff-concluding-statement-for-the-2018-article-iv-mission)

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## Bibliographic details
- Published: March 5, 2018

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### 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).*

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## References

- [Qatar and the IMF](http://www.imf.org/external/country/QAT/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Mission Concluding Statements](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/03/05/ms030518-qatar-staff-concluding-statement-for-the-2018-article-iv-mission_