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Significant fiscal and external buffers have enabled Qatar to successfully absorb the adverse shocks from the 2014-16 decline in oil prices and the diplomatic rift. The country’s near- to medium-term outlook remains favorable in the context of relatively higher hydrocarbon prices, prudent fiscal policy, healthy financial system and accelerated structural reforms, the IMF mission team stated yesterday, after concluding its week-long visit to Qatar.
The International Monetary Fund (IMF) team led by Mohammed El Qorchi (pictured)visited Doha from October 29-November 4 to assess recent economic developments and outlook since the completion of the 2018 Article IV consultation in May.
The statement issued by El-Qorchi at the end of the visit said: “Qatar’s economic performance continues to strengthen. Non-hydrocarbon output grew by about 6 percent during the first half of 2018, as the economy recovered from the impact of the diplomatic rift and oil prices surged.
However, hydrocarbon output fell by about 1.6 percent during the same period, culminating in overall real GDP growth of 2.3 percent. Real GDP growth of 2.4 percent is projected for 2018 as a whole up from 1.6 percent in 2017. Headline inflation remains subdued. Fiscal and external positions are strengthening, and the central bank’s foreign exchange reserves have increased. Monetary and financial conditions have improved significantly, with banks attracting non-resident flows and were able to reduce reliance on the financial support from the fiscal and monetary authorities. Excises would likely be put in place in 2019.
The IMF team said the near- to- medium-term outlook for the Qatari economy is benefiting from increased oil prices and prudent macroeconomic policies. The mission team anticipates overall real GDP growth of 3.1 percent in 2019, with still robust non-hydrocarbon growth and recovery in oil and gas production. Over the course of 2020-2023, real GDP growth of about 2.7 percent annually is projected, underpinned by still significant public infrastructure spending, expansion of liquid natural gas production, and the hosting of 2022 World Cup.
Qatar’s fiscal and external balances will remain in surplus during 2019-2023, supporting additional foreign exchange accumulation by the central bank. Nonetheless, the outlook is subject to downside risks, including the economic and financial impact of escalated global trade tensions, tightened monetary policy stance in the US, and increased volatility in global financial markets.
“Despite higher oil prices, Qatar plans to pursue prudent fiscal policy while taking into consideration its associated impact on the economy. The 2019 budget is expected to contain overall expenditure growth, with continued emphasis on allocation to critical sectors (health and education). The current account surplus is projected at about 7 percent of GDP in 2019. QCB’s foreign exchange reserves are expected to increase further, reaching about $36bn in 2019,” the IMF team said.
Qatar’s banking sector remains sound. Foreign liabilities withdrawn in the immediate aftermath of the diplomatic rift have been partially replaced with greater attention being paid to the diversity of funding sources and deposit maturity structure. Official deposits placed with banks after the rift have been reduced. As higher oil prices and returning foreign liabilities have enhanced banking liquidity, credit to the private sector has been growing at a healthy pace. QCB continues to closely monitor developments in the real estate sector in view of the softening in prices and potential implications for the banking sector.
Progress with structural reforms continues. The country’s second national development strategy highlights the need for economic diversification. The strategy identifies priority sectors including manufacturing, financial services, and tourism, while emphasizing competitiveness and the role of the private sector. The Private Sector Committee is promoting public-private partnership in areas such as food security, manufacturing, health, and education, the IMF mission team said.
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