Statement by the IMF Staff Representative

Qatar has weathered the global economic crisis well. Enhancement of liquefied natural gas capacity (LNG), government support to the banking system, and increase in public spending sustain the high growth rates. There is a need to monitor aggregate demand to prevent the resurgence of inflation pressures. The creation of a financial stability unit and the results of recent stress tests show the banking system’s resilience to market and credit risks. The coordination among data providers and intention to seek technical assistance in consumer price index are noted.

Abstract

Qatar has weathered the global economic crisis well. Enhancement of liquefied natural gas capacity (LNG), government support to the banking system, and increase in public spending sustain the high growth rates. There is a need to monitor aggregate demand to prevent the resurgence of inflation pressures. The creation of a financial stability unit and the results of recent stress tests show the banking system’s resilience to market and credit risks. The coordination among data providers and intention to seek technical assistance in consumer price index are noted.

February 16, 2011

1. This statement provides information on recent developments in Qatar that has become available since the staff report was circulated to the Executive Board on January 21, 2011. The new information does not change the thrust of staff appraisal.

2. Official data released by the authorities show that average headline CPI inflation was -2.5 percent in 2010. In January 2011, the authorities increased local fuel prices on average by 25 percent. Staff estimates that the effect of this measure on inflation will be about 0.9 percent.

3. Bank credit to the private sector rose by 10.6 percent in 2010, while broad money increased by 23 percent. Qatar Central Bank issued 3-year government bonds (Islamic and conventional) for a face value of $13.7 billion to local banks at 5.0 percent coupon rate to absorb excess liquidity.

4. The authorities announced that the Qatar Investment Authority (QIA) plans to infuse 10 percent equity in local banks during the first quarter of 2011, to complete the third tranche of the decision taken during the global crisis of 2008 to increase the capital of local banks by 20 percent.

5. There have not been any significant spillovers from financial markets re-pricing of political and sovereign risks in the region to Qatar. Since January 10, sovereign spreads have widened by 10 basis points (from 86 bps to 96 bps) and Qatar Exchange lost less than 1 percent of its value.

Qatar: 2010 Article IV Consultation-Staff Report; Staff Statement and Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Qatar
Author: International Monetary Fund