IMF Executive Board Concludes 2008 Article IV Consultation with QatarPublic Information Notice (PIN) No. 09/09
January 28, 2009
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
On January 21, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Qatar.1
Qatar's macroeconomic performance was strong in 2008, notwithstanding the global financial crisis. Overall real gross domestic product (GDP) growth is estimated at 16 percent in 2008, driven by expansions in the production of oil, liquefied natural gas (LNG), and condensates, and a strong performance in manufacturing, construction, and financial services. However, inflation remained high at 15 percent, reflecting high rent and food prices, as well as large public outlays and a rapid expansion in private sector credit. The overall fiscal surplus (12 percent of GDP in FY2007-08, April-March) reflected a large increase in oil revenue and a slowdown in expenditure relative to FY2006-07. The external current account recorded a large surplus (about 37 percent of GDP) despite the almost 50 percent growth in imports (mainly capital goods).
The global turmoil has had a limited impact so far on the banking system. Recent assessments indicate that potential stresses are manageable. At the same time, weak sentiment has weighed on shares and the equity market declined (30 percent), although the underlying fundamentals remain strong.
Qatar is expected to perform at least as strong in 2009, driven by a rapid expansion in LNG production (and related industries) and in investments aimed at economic diversification. Inflation is projected to fall in 2009, as a result of the passthrough of declining international prices for food and raw materials and a slower increase in domestic rents owing to a larger supply of low- and middle-income housing. The fiscal and external current accounts are projected to remain in surplus in 2009, despite the lower oil prices.
Qatar's medium-term outlook is positive, with continuing strong growth, gradually declining inflation, and fiscal and external current account surpluses. The main risks to this outlook include a prolonged global financial crisis, persistently low oil prices, a large decline in real estate prices, reduced availability of financing for projects, and an escalation in geopolitical tensions.
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal. They commended the Qatari authorities for the impressive macroeconomic performance in recent years, which has strengthened the economy's resilience to the current global financial crisis and economic downturn. They noted that prudent macroeconomic policies have contributed to booming investment and exports, resulting in double-digit growth in both the hydrocarbon and non-hydrocarbon sectors and in sizeable external and fiscal surpluses, which leave Qatar's economy well placed to withstand shocks.
Directors considered the medium-term outlook favorable, and noted that the key challenges facing the authorities are to lower Qatar's high rate of inflation, continue to shield the economy from the global financial crisis, ensure that rapid credit growth does not undermine bank soundness, and diversify the economy to reduce the dependence on hydrocarbon production and exports. They welcomed the authorities' continued commitment to sound macroeconomic management to achieve these objectives. Directors agreed with the assessment that inflationary pressures should ease gradually because of lower food and raw material prices and an increase in the supply of residential and commercial properties. They encouraged the authorities to avoid the distortionary effects of price and rent controls, noting that these measures should at best be temporary.
Directors welcomed the authorities' intention to moderate fiscal expansion and broaden the non-oil revenue base over the medium term. They supported the emphasis on building capacity in infrastructure and, easing supply bottlenecks, while containing government current expenditure to reduce inflation. Directors agreed that, should the global crisis persist or external financing difficulties arise, a temporary increase in government investment spending would be warranted to support demand without undermining the effort to contain inflation.
Directors noted that Qatar's banking system is well-capitalized, liquid, and profitable. They welcomed the central bank's proactive stance to maintain confidence in the financial system and encouraged the authorities to continue to monitor closely financial sector developments, implement international standards against money laundering and terrorism financing, and upgrade financial sector surveillance capabilities. Directors supported the central bank's use of stress testing of financial institutions and endorsed the development of an early warning system to identify financial sector vulnerabilities. They also welcomed the consultation between the central bank and the government on the issuance of government bonds to improve liquidity forecasting and debt management.
Executive Directors welcomed the progress made so far in establishing a unified regulator for financial services. They agreed on implementing the unified regulator gradually, preferably after proposals for improving the international financial regulatory framework have been agreed upon. In the interim, coordination should be enhanced among existing regulators and further improvements to the regulatory framework should be continued.
Directors agreed that the peg to the U.S. dollar continues to provide a credible anchor for monetary policy and maintain external stability. They noted the staff's finding that the level of the Qatari riyal appears to be in line with economic fundamentals. They welcomed the authorities' commitment to the GCC Monetary Union, and the decision to launch the Monetary Council by the end of 2009.
Directors commended the establishment of the Qatar Statistics Authority. They urged the authorities to continue improving the quality of economic statistics, particularly data on national income, the balance of payments, and the international investment position.