Statement by the IMF Staff Representative on Qatar

Qatar’s macroeconomic performance was strong in 2008, notwithstanding the global financial crisis. This 2008 Article IV Consultation discusses that overall real GDP growth is estimated at 16 percent in 2008, driven by expansions in the production of oil, liquefied natural gas, and condensates. Executive Directors have welcomed the authorities’ intention to moderate fiscal expansion and broaden the non-oil revenue base over the medium term. They have supported the emphasis on building capacity in infrastructure and easing supply bottlenecks while containing government current expenditure to reduce inflation.

Abstract

Qatar’s macroeconomic performance was strong in 2008, notwithstanding the global financial crisis. This 2008 Article IV Consultation discusses that overall real GDP growth is estimated at 16 percent in 2008, driven by expansions in the production of oil, liquefied natural gas, and condensates. Executive Directors have welcomed the authorities’ intention to moderate fiscal expansion and broaden the non-oil revenue base over the medium term. They have supported the emphasis on building capacity in infrastructure and easing supply bottlenecks while containing government current expenditure to reduce inflation.

January 21, 2009

1. This statement provides information on recent developments in Qatar that has become available since the staff report was circulated to the Board on January 5, 2009. This information does not change the thrust of the staff appraisal.

2. The oil price baseline assumption for the World Economic Outlook (WEO) was revised downward in January 2009 to $50 a barrel for 2009 (from $54 a barrel assumed in the staff report). The Organization for Petroleum Exporting Countries (OPEC) announced a further cut in its crude oil production ceiling by 2.2 million barrels a day (mbd), with effect from January 1, 2009 (in addition to a cut of 1.5 mbd in September 2008). Assuming that Qatar fully implements its share of the cut in production and an unchanged expenditure profile, real gross domestic product (GDP) growth would decline by 1 percentage point in 2009 to 28 percent; the fiscal surplus would decline by 1 percentage point to 3.6 percent of GDP; and the current account surplus, at 9.4 of GDP, would be 3 percentage points of GDP lower than envisaged, all compared with the baseline scenario presented in the report.1 Over the medium-term, Qatar will still maintain on average double-digit growth rates in non-oil real GDP and will continue to record fiscal and current account surpluses, although at lower levels.

3. Financial conditions remain stable. Monetary data through November 2008 show comfortable levels of liquidity in the interbank market, deposits and lending by the banking system have continued to grow moderately, and interbank rates have moved back to below 2 percent—near the level before the global crisis. However, the weak sentiment in the stock market continues, with the market declining by more than 30 percent since September 10, 2008. On the policy front, the central bank did not reduce its policy rates when the U.S. Federal Reserve lowered rates in December 2008.

4. The potential for a sharp drop in real estate prices is of less concern in Qatar since the real estate market is characterized by excess demand, which has been the main cause for rental inflation. New units are being completed and, following the introduction of the cap on rents, rent inflation is beginning to decline.

5. On December 30, 2008, the Heads of the Gulf Cooperation Council (GCC) approved a draft accord for the monetary union and a system governing the monetary council. The agreement must now be signed by the countries’ heads of state for final approval, and is expected to come into force by the end of 2009. The GCC countries continue to meet all the convergence criteria, except for Qatar where the inflation rate is higher than the benchmark.2,3

1

In estimating the downside risks to the medium-term outlook, the staff report assumed (i) an oil price of $45 a barrel in 2009; (ii) a larger cut in oil production than was subsequently agreed by OPEC; and (iii) a 5 percent reduction in liquefied gas production (LNG) relative to the baseline (para 6 of the staff report).

2

Fiscal deficits not to exceed 3 percent of GDP; public debt to GDP ratios not to exceed 60 percent; inflation rates not to exceed the GCC weighted average of inflation rates plus two percentage points; short-term interest rates not to exceed the average of the lowest three interest rates amongst the member countries plus two percentage points; and foreign exchange reserves to cover at least 4 months of imports.

3

Data for September 2008 show that the average inflation rate for the first three quarters of 2008 was about 15.5 percent.

Qatar: 2008 Article IV Consultation: Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion;
Author: International Monetary Fund