DOHA: The International Monetary Fund (IMF) has stated that Qatar’s currency peg to the US dollar remains appropriate for the country.
The peg to the US dollar continues to serve Qatar well, providing a clear and credible monetary anchor. Nevertheless, the exchange rate regime should be periodically reviewed to ensure it remains appropriate as the economy moves towards a more diversified export structure, the Fund noted in a statement prepared on the basis of the preliminary findings of IMF staff, at the end of an official visit to Qatar.
The IMF Staff’s assessment suggests that the external position is moderately weaker than the level that would be consistent with sufficient saving of Qatar’s exhaustible resource revenue. However, with gradual fiscal adjustment, the estimated current account gap could be closed in the medium term.
Reserves are considered to be broadly adequate in view of the size of the sovereign wealth fund.
On the fiscal policy, the Fund said continuing gradual fiscal consolidation over the medium term will help ensure adequate saving of the exhaustible hydrocarbon wealth for future generations.
The nonhydrocarbon primary balance consistent with intergenerational equity (the benchmark nonhydrocarbon primary deficit calculated using the permanent income hypothesis) is the appropriate anchor for assessing the fiscal position in Qatar, given ample oil and gas reserves.
With the fiscal consolidation that has already taken place during 2016–17, the estimated gap between the non-hydrocarbon balance derived from this framework and the actual non-hydrocarbon primary balance in 2017 was about 6 percentage points of non-hydrocarbon GDP. Gradual fiscal consolidation is appropriate in view of significant fiscal space. The authorities have the space to go even slower in the event of adverse shocks or if cyclical conditions warrant, the Fund said.
Effective prioritization and sequencing of fiscal reforms is important for Qatar to preventing reform fatigue. In line with this approach, the 2018 budget continues with gradual fiscal consolidation, with emphasis on new tax measures (VAT and excises), fees for the use of government services, contained current expenditure, and efficient and higher capital expenditure.
In the medium term, further fiscal consolidation is envisaged, including limiting the growth of the public wage bill and spending on good and services, and reduced public investment. Going forward, consideration could be given to wage reform, underpinned by restructuring based on well-designed and implemented public sector employment reforms in conjunction with reforming education and the labor market.
Public employment reform is important to improving economic efficiency and supporting private sector-led growth. The direction of the energy and water price reforms is appropriate. Gradually reducing energy subsidies (water and electricity), while putting in place robust mechanisms to protect the most vulnerable segments of the population is important.
According to the Fund, efforts are ongoing in Qatar to develop financial markets and strengthen their financial integrity. Deepening domestic financial markets, especially domestic government and corporate bond markets, should be a priority reform area to support non-hydrocarbon private sector growth. Developing financial markets, ensuring financial inclusion and fostering financial innovation (FinTech) that seeks to reach out to a broader base through cost-effective technology are a cornerstone of the authorities’ Second Strategic Plan for the Financial Sector.
Qatari authorities are increasingly focusing on enhancing AML/CFT effectiveness and strengthening anti-corruption regimes. They are putting in place a comprehensive mechanism to implement targeted financial sanctions and managing risks posed by non-profit organizations. In addition, priority is given to the combating of terrorist financing legal framework, and the assessment of national risks.
