By Satish Kanady
DOHA: Lower oil prices will lead to a substantial deterioration of the fiscal and external balances of Qatar.
The government budget could fall into a deficit from 2016 onwards and external surpluses will shrink substantially. Economic growth is expected to slow over the medium term as public investment growth tapers, the International Monetary Fund (IMF) has noted.
In its ‘Qatar country report’ released yesterday, IMF said the country’s economic growth is expected to increase to about 7 percent in 2015 as the Barzan natural gas field starts production and authorities continue implementing the public investment programme.
“The short-term growth outlook is positive,” the report said.
The main risks to the macroeconomic outlook are the possibility of lower-than-expected oil and natural gas prices and the possible side effects of public investments in the form of short-term overheating and medium-term excess capacity.
Growth will remain strong this year, but is expected to slow going forward. In the near term, it will be propelled by the public investment programme and a new natural gas field.
Non-hydrocarbon growth should stay in double digits, the report said.
Over the medium term, headline growth is expected to slow down significantly as the public investment programme tapers off and the private sector offsets only some of the decline.
Lauding Qatar for its strategy of diversifying its economy, IMF said : “Qatar is implementing an ambitious diversification strategy, while retaining its systemic role in the global natural gas market. Qatar accounts for one-third of global liquefied natural gas (LNG) trade and has emerged as an important global financial investor, labor importer, and donor. The authorities are executing a large public infrastructure program to advance economic diversification and prepare for the FIFA 2022 World Cup”.
The economy has maintained strong growth momentum so far despite the large drop in oil prices since summer 2014. Real GDP growth has been stable at about 6 percent over the past three years, mostly driven by a double-digit expansion of the non-hydrocarbon sector. Falling global commodity prices have helped reduce inflation below 3 percent, despite a tight real estate market.
Consumer price inflation is contained, although real estate prices have grown quickly. CPI inflation has eased in recent months, as rent increases stabilized and tradables inflation fell. In the short run, lower international commodity prices, including for food, and a strong U.S. dollar should reduce headline inflation despite the tight rental market. That said, real estate prices—especially land prices—are increasing particularly fast, and valuations appear on the upper end of a range consistent with fundamentals.
Consideration should be given to introducing a differentiated schedule of real estate transaction fees to deter speculators and taking further measures to increase land supply. Imposing rent controls could prove counterproductive. In case of excessive credit growth, further macroprudential measures and liquidity withdrawals should be deployed. If inflation accelerates, policymakers should slow public sector spending.
Banks remain sound and the financial sector regulatory agenda is moving forward, but emerging risks and vulnerabilities need to be carefully monitored. Despite broadly stable credit growth overall, potential emerging risks include the risk of falling liquidity due to the oil price drop, and rapidly-growing credit to selected sectors and across the border. Although the banking system as a whole appears cushioned from real estate sector volatility, developments at weaker banks need to be closely monitored.
The Peninsula
