Statement by Mr. Shaalan on Qatar Executive Board Meeting, April 18, 2014
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International Monetary Fund. Middle East and Central Asia Dept.
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This 2014 Article IV Consultation highlights that Qatar’s macroeconomic performance has remained strong. GDP growth slowed from 13 percent in 2011 to 6.2 percent in 2012, mostly owing to the self-imposed moratorium on additional hydrocarbon production from the North Field. Growth was 6.5 percent in 2013, driven by strong expansion in the nonhydrocarbon sector. The negative spillovers from sluggish global growth and financial market volatility have been limited. The baseline macroeconomic outlook is positive. GDP growth could stay at about 6 percent in 2014, with public investments keeping growth at about 6–7 percent over the medium term.

Abstract

This 2014 Article IV Consultation highlights that Qatar’s macroeconomic performance has remained strong. GDP growth slowed from 13 percent in 2011 to 6.2 percent in 2012, mostly owing to the self-imposed moratorium on additional hydrocarbon production from the North Field. Growth was 6.5 percent in 2013, driven by strong expansion in the nonhydrocarbon sector. The negative spillovers from sluggish global growth and financial market volatility have been limited. The baseline macroeconomic outlook is positive. GDP growth could stay at about 6 percent in 2014, with public investments keeping growth at about 6–7 percent over the medium term.

1. On behalf of the Qatari authorities, I thank staff for their engagement with Qatar and the constructive Article IV Consultation discussions.

Recent Economic Developments and Outlook

2. Qatar’s macroeconomic performance remained strong in the past year. Growth was solid, driven by a large expansion in the non-hydrocarbon sector, and the fiscal and external accounts continued to post large surpluses. Efforts to diversify the economy—guided by the National Development Strategy 2011-16—resulted in a sharp increase in the non-hydrocarbon sector which is now equal to about half the size of the economy. This sector is expected to continue to sustain strong growth in the medium-term in spite of the moratorium on the development of natural gas projects in the North Field.

3. While Qatar’s prospects are favorable, the authorities are vigilant about potential risks of over-heating in the near term. The main medium-term risks are over-capacity as a result of the large public investment program and an expected decline in oil and gas prices. Qatar’s large fiscal and external buffers provide ample policy space to mitigate these risks, as noted by staff. To manage risks related to the infrastructure program, the authorities intend to phase in investment projects. They have also established the Central Planning Office to oversee infrastructure investments, and are currently setting up the Public Investment Management unit at the Ministry of Finance.

Fiscal Policy and Reforms

4. The authorities are committed to fiscal efficiency and saving fiscal surpluses to strengthen buffers against shocks and save for future generations. This is reflected in their long-term objective to fully finance the budget from non-hydrocarbon revenues.

5. The overall fiscal surplus is projected to increase to about 11 percent of GDP in 2013/14, mainly due to an increase in public enterprises’ revenue and a slight decline in expenditures. The authorities intend to eliminate spending overruns and aim to reduce current expenditures, while prioritizing health, education and capital spending. In this connection, they started introducing a medium-term focus into the budget process. The 2014/15 draft budget required ministries and agencies to provide indicative budget estimates for three years and to share performance information about their programs. The authorities are also setting up a Government Finance Management Information System, which would significantly improve the capacity for fiscal management and reporting. In addition, a macro-fiscal unit was established and will benefit from Fund technical assistance later this month.

6. Qatar’s Public Investment Management Index score is broadly similar to its’ peers, as detailed in the Selected Issues Paper. The authorities see merit in staff’s recommendation to adopt an integrated approach to public investment management, and have initiated measures in this regard. These include setting up a Public Investment Management unit and finalizing the Public Financial Management Law.

Monetary and Financial Sector Policies

7. Price increases accelerated in early 2013 due to increased housing demand but eased recently as housing supply increased.

8. The authorities made considerable progress with regards to the financial sector regulatory agenda. The Qatar Central Bank (QCB) Governor has become the head of the Financial Stability and Risk Committee and serves as a chairman of the three main regulatory agencies (the QCB, the Qatar Financial Center Regulatory Authority, and the Qatar Financial Markets Authority). The QCB has also taken over responsibility for the previously lightly-regulated insurance sector. In December 2013, the three main regulatory agencies published their Strategic Plan for Financial Sector Regulation—which was aimed to move to risk-based regulations, expand macro-prudential oversight, and strengthen market infrastructure.

9. Qatar’s banking sector remains profitable, well capitalized, and resilient to shocks. In addition, the sector meets the Basel III requirements on capital, liquidity and leverage ratios. The authorities take note of staff’s view that deposits and credit are concentrated, and asset quality is exposed to risks from high single party exposures. They are considering a reduction in the loan-to-deposit ratio which would further improve the strong liquidity profile of the banking system and its asset quality. QCB appreciates staff’s work on the early warning system to identify risks and links across all sectors of the economy. It plans to incorporate some of the Fund’s technical recommendations in its’ next Financial Stability Review.

10. The authorities recognize that developing deep and liquid domestic debt markets can bring important benefits by enhancing the monetary transmission mechanism and facilitating liquidity management. Going forward, they will continue issuing domestic currency-denominated securities, while trimming foreign borrowing. Recent additional measures to deepen the financial market include the launching of exchange-traded funds by the end of April, setting-up domestic credit rating agency, and expanding the coverage of the credit bureau.

Economic Diversification

11. The authorities attach high priority to economic diversification and private sector participation in the economy. Qatar National Vision 2030 focuses on enhancing economic diversification through human development and investment in the non-hydrocarbon sector. Initiatives to support small and medium-sized enterprises include loan guarantees and feasibility studies. Additionally, efforts are being made to improve the quality of education and raise total factor productivity by promoting knowledge-based sectors.

Statistical Issues

12. The authorities are committed to further improve statistics to assist decision-making and macroeconomic management. The Ministry of Development Planning and Statistics is finalizing the Foreign Investment Survey which should substantially improve the balance of payments and international investment position statistics.

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