By Satish Kanady
DOHA: Given Qatar’s commitment to a deadline set for the launch of huge development projects ahead of the 2022 FIFA World Cup, the country will face the risk of cost escalation. To address this, an integrated approach to public investment management, including procedures for selection and appraisal of all projects in the next budget would be highly desirable, International Monetary Fund (IMF) said on Friday.
Qatar has made some progress in developing the institutional structures needed for efficient implementation of the National Development Strategy. Certain big-ticket projects such as the metro, port, and airport have been scaled down or divided into phases to reduce the risk of overcapacity, and the authorities are preparing a short list of critical projects. However, the large-scale nature of the programme has led to implementation delays and cost overruns, IMF said in its latest country report prepared after the Fund Mission met with with H E Ali Shareef Al Emadi, Minister of Finance, H E Sheikh Abdullah bin Saoud Al Thani, the Governor of Qatar Central Bank (QCB), H E Saleh bin Mohammad Al Nabit, Minister of Development Planning and Statistics, and other senior government and central bank officials.
IMF said Qatar has started introducing a medium-term focus into the budget process. The budget circular for FY2014-15 requires ministries and agencies to provide indicative budget estimates until FY2016-17 and to share performance information about the execution of their programs. Once fully effective, the medium-term budget framework (MTBF) will help ensure that government spending is shielded from revenue volatility and expenditure targets are not exceeded. Qatari authorities are confident that the tradition of spending overruns can be largely eliminated already during the current budget cycle.
Qatar’s main medium-term risk remains the possibility of a sharp decline in oil and gas prices in light of growing unconventional oil and natural gas supplies, sluggish global growth, and rising energy efficiency. There is anecdotal evidence that while the US shale gas boom has not meaningfully affected revenues so far, it is starting to put downward pressure on prices negotiated for future LNG supplies.
Global financial volatility, a persistent slowdown in emerging markets and a renewed crisis in the euro area are short term risks to Qatari economy. Revenue losses from lower oil and natural gas exports would likely be the most significant spillover channel for Qatar given the high share of hydrocarbons in budget revenues and exports.
However, the financial channel could also emerge as important depending on circumstances, given Qatar banks’ remaining wholesale funding exposures abroad and external financing needs for the infrastructure program. A global financial shock would also reduce the value of Qatar’s sizeable foreign assets, the Fund cautioned. However, the Fund said Qatar has ample policy space to deal with unexpected circumstances in the short term.
Fiscal buffers and remaining natural resources are sizeable and spending is unlikely to be affected by a drop in hydrocarbon prices or market volatility in the near term. The QCB can inject liquidity into the system through its lending window and repo operations, and the government could achieve the same goal by managing portfolio allocations of the QIA and public sector enterprises.
Qatar’s inflationary pressures appear contained at the moment, but policymakers need to remain vigilant. The authorities—mindful of Qatar’s 2006-08 experience with double-digit inflation—intend to phase in the investment projects gradually. However, if signs of overheating emerge, the authorities should smooth fiscal spending, and deploy further macroprudential measures and liquidity withdrawal operations in case of excessive credit growth or risk-taking.
Developing deep and liquid domestic debt markets can bring important benefits. These include funding for the large infrastructure investment programme as Qatar advances its diversification agenda, enhancing the monetary transmission mechanism, and facilitating liquidity management.
The Peninsula
