DOHA: Qatar’s GDP growth could stay around 6 percent in 2014 as the pickup in the public investment programme is roughly offset by a modest decline in hydrocarbon output. Public investments are expected to keep growth roughly 6–7 percent over the medium term, with nonhydrocarbon growth remaining about 10 percent, according to IMF.
On Friday, the Fund projected Qatar’s inflation is to remain benign at 3 to 4 percent going forward—a modest increase from recent years. The anticipated gradual decline in commodity prices, including for food, should help reduce price pressures from strong economic activity in the context of the exchange rate peg.
Fiscal and external balances are projected to taper down significantly over time due to flat LNG production, falling crude oil output from mature fields, expected lower hydrocarbon prices, and growing nominal expenditures. The public debt ratio is expected to fall, but the headline budget balance could—according to IMF staff projections—turn into deficit over the medium term, while the current account surplus could drop to 5 percent of GDP.
GDP growth slowed from 13 percent in 2011 to 6.2 percent in 2012, largely as a result of the long-standing self-imposed moratorium on additional hydrocarbon production from the North Field. Growth is estimated to have remained around 6 percent in 2013, driven by a 10 percent expansion in the nonhydrocarbon sector, particularly construction, transport, communications, and finance.
The nonhydrocarbon sector now accounts for almost one-half of the economy. Negative spillovers from the global slowdown have been limited since the tight LNG market and supply disruptions among other oil producers have kept hydrocarbon prices high.
Qatar’s inflation rate increased early last year due to increased housing demand, but has fallen since then. With rents constituting over 30 percent of the CPI basket, a strong inflow of expatriate workers in the context of diminishing housing market slack pushed up CPI inflation to 3.7 percent year-on-year (y-o-y) in April 2013. However, inflation has eased to 2.3 percent y-o-y in January as rents stabilised.
Core inflation excluding food, rent, and utilities has also been on a downward trend, with January core inflation at 1.4 percent. House prices have been growing strongly since the crisis-related drop in 2008-09, but according to crude measures, valuations appear broadly in line with fundamentals.
Qatar’s budget surplus increased to 9 percent of the GDP in FY2012-13 on the back of strong growth in revenues, despite a substantial overrun in current expenditures. Spending on infrastructure and other capital projects was broadly unchanged, but capital expenditures have picked up during the current fiscal year. Gross government debt for fiscal year 2013-14 (ending March 2014) is projected at 33 percent of GDP, with the authorities issuing T-bills and T-bonds for financial market development and liquidity management purposes.
The current account recorded a surplus of 32 percent of GDP in 2012 and another high surplus can also be expected in 2013, reflecting sustained high prices of LNG, crude oil, and condensates exports. LNG prices in Qatar’s main export markets in Asia have so far remained largely unaffected by the rapid growth in the US unconventional gas and oil production. The real effective exchange rate is estimated to have remained roughly unchanged during 2013.
Qatar’s banking sector is profitable and well capitalised. The banking system remains highly profitable with a return on assets at 2 percent. Liquidity buffers are strong, with liquid assets around 50 percent of total assets. The aggregate loan-to-deposit ratio has fallen from 1.2 to 1.0 over the past year, partly due to rising public sector deposits.
The Peninsula
