The budget of Qatar's government could fall into a deficit from 2016 and external surpluses will shrink substantially if oil and gas prices remain depressed, according to a new report by the International Monetary Fund (IMF).
Its executive board said that Qatar's short-term growth outlook is positive, but lower oil prices will lead to a substantial deterioration of the fiscal and external balances.
Qatari officials have said they planned to spend as much as about $200 billion on transport, electricity generation, water supply, housing and other projects between 2013 and 2018.
The plunge of oil and natural gas prices since mid-2014 has hurt Qatar's state finances, and there are signs that spending has become more cautious; some projects are being delayed or cut back.
In January, state-owned Qatar Petroleum and Shell said they had decided not to proceed with the $6.4 billion Al Karaana petrochemical project in Qatar.
Growth May Increase
Growth is expected to increase to about 7 percent in 2015 as the Barzan natural gas field starts production and the authorities continue implementing the public investment program.
The report added that real estate prices in Qatar — especially land prices — are increasing particularly fast, and consideration should be given to introducing a differentiated schedule of real estate transaction fees to deter speculators and taking further measures to increase land supply.
The IMF said the prospects of persistently low oil prices and slowing medium-term growth call for intensification of diversification efforts in Qatar.
“There is scope for further improving the business environment and promoting diversification, including by simplifying business registration, improving enforcement of contracts, and enhancing the quality of educational curricula.
Privatization would also help stimulate private sector activity. Growth would be made more inclusive through labor market reforms.
“The main risks to the macroeconomic outlook are the possibility of lower-than-expected oil and natural gas prices and the possible side effects of public investments in the form over short-term overheating and medium-term excess capacity,” it noted.
“Qatar’s growth will remain strong this year, but is expected to slow going forward... Over the medium term, headline growth is expected to slow down significantly as the public investment program tapers off and the private sector offsets only some of the decline,” the executive board said.
Consumer Price Inflation
It said consumer price inflation is contained, although real estate prices have grown quickly. CPI inflation has eased in recent months, as rent increases stabilized and tradables inflation fell.
The report added that banks remain sound and the financial sector regulatory agenda is moving forward, but emerging risks and vulnerabilities need to be carefully monitored.
“Although the banking system as a whole appears cushioned from real estate sector volatility, developments at weaker banks need to be closely monitored,” the IMF said.
