Qatar economy to remain strong in medium term
IMF says Qatari’s economy is boosted by high oil prices and gas sales
Posted: 31 December 2007
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Qatar ’s economy is expected to remain strong in the medium term as oil prices are expected to be high and the country is pushing ahead with mega gas projects, according to the International Monetary Fund.
In 2006, the country’s economic performance was strong, with real GDP growing by about 10% driven by increased production of liquefied natural gas, and strong activity in the construction and financial services sectors, the Fund said in its latest annual review of the Qatari economy.
It said Qatar ’s external current account recorded a surplus of about 31% of GDP, as the increase in hydrocarbon exports offset a rise in imports owing to the initiation of large mega projects.
The financial account showed large outflows, reflecting a buildup of external assets by the government, and the financial, corporate, and household sectors. Gross official reserves of the central bank (excluding government's external assets) increased by about $0.8 billion in 2006, to $5.4 billion by year's end.
“ Qatar continued to perform strongly in 2007, supported by high oil and gas prices and ongoing investments in the gas sector. Inflation was projected to remain high at about 12%. The external current account surplus would be about 33% of GDP, and the gross reserves of the Qatar Central Bank (QCB) and the external assets of the government and commercial banks were expected to increase further,” the report said.
“ Qatar 's medium-term outlook is very favorable, with continued strong growth expected to be driven by the hydrocarbon sector, as well as by diversification into higher value-added petrochemicals and financial services. The fiscal and external positions are expected to remain very comfortable. Downside risks to the outlook include lower oil prices and shortfalls in gas production, continued high inflation, and a deterioration of the security situation in the Gulf region.”
The IMF said its Executive Directors commended Qatar 's strong economic performance in recent years, characterized by impressive GDP growth, sizable fiscal and external current account surpluses, and a robust financial sector. Historically-high oil and gas prices have allowed Qatar to increase investment aimed at advancing economic diversification, particularly in oil and gas-related petrochemicals, education, financial services, and tourism. Looking ahead, the authorities face the challenge of sustaining growth while maintaining macroeconomic and financial stability, putting in place appropriate policies for managing hydrocarbon revenues, deepening financial markets, and developing a competitive private sector, they said.
“Directors noted that, although Qatar 's medium-term prospects are very favorable, high inflation remains a concern and its reduction should be a priority. Most Directors were of the view that inflationary pressures are likely to remain high in the near term even if pressures from the shortage of housing units ease. In light of this, Directors recommended restraint in current expenditures, and the phasing of development expenditures in line with the absorptive capacity of the economy and Qatar 's medium-term priorities,” the report said.
“At the same time, Directors acknowledged the special methodological difficulties in making assessments of equilibrium exchange rates for an oil-exporting economy such as Qatar facing volatile oil prices. Directors considered that the peg to the U.S. dollar has served the economy well by anchoring monetary conditions, and supporting the needs of a small, open, and oil-dependent economy,” the report added.
“ They noted the authorities' intention to maintain the peg in the period leading to the monetary union of the GCC countries, while keeping an open mind about the choice of the exchange rate regime under the prospective monetary union. A few Directors suggested that consideration be given to moving to a more flexible exchange rate regime to help curb inflationary pressures.” |
