Qatar’s economy will post growth of 4.5 per cent in 2015, up from 4 per cent last year, the managing director of the international Monetary Fund Christine Lagarde has stated.
That is much lower than IMF’s April forecast, when it predicted that Qatar will see 7 per cent gross domestic product growth in 2015. The report had also warned that Qatar’s budget will be in deficit from 2016 onward because of lower oil prices and that its current account surplus will largely be eliminated.
However, following a visit to the Gulf state last week, Lagarde confirmed that Qatar’s near-term macroeconomic outlook remains strong.
“Qatar has been one of the fastest growing countries in the region. Growth could accelerate from 4 per cent in 2014 to above 4.5 per cent this year and next, supported by a large public infrastructure programme and opening of a new natural gas field,” she said in a statement.
“The decline in oil and natural gas prices will substantially reduce external and fiscal surpluses, but its impact on growth will be softened in the near term due to the availability of Qatar’s sizeable financial buffers and continued public investments,” she added.
Oil prices have declined by more than 50 per cent since hitting highs of around $114 per barrel in June last year. All the oil-exporting Gulf Cooperation Council countries have been impacted, although those with huge buffers such as Saudi Arabia and Qatar have not been as badly hit as others such as Oman and Bahrain.
“Qatar’s public finances remain comfortable, but, with the drop in oil and natural gas prices, the portion of exhaustible resource revenues being saved may not be sufficient to maintain the same standard of living for future generations,” said Lagarde.
“Thus, the recent steps by the Ministry of Finance to improve the budget process and formulate a fiscal consolidation strategy in the context of a medium-term framework are welcome.
“Given the strong starting financial position, the fiscal consolidation can be gradual so as to reduce the risk of adverse effects on economic activity,” she added.
She also stressed that the banking system in Qatar is well-placed to weather lower oil prices, weaker non-hydrocarbon growth and higher US interest rates.
“Nevertheless, as hydrocarbon revenues decrease and external financing conditions tighten, the central bank will need to remain vigilant for pressures in the system and provide liquidity to the financial sector if needed,” Lagarde said.
“Further enhancements to the early warning system and addressing data gaps would facilitate a timely monitoring of risks, including from overheating in the real estate market,” she added.
Overall, Qatar has made important progress in diversifying its economy into non-hydrocarbon activities, the IMF head said. Additional structural reforms by policymakers will further support this process and enhance the country’s business environment.