Qatar’s government should raise revenue in response to oil prices that could be permanently lower and increase real estate transaction fees to deter land speculation, the IMF says in its annual Article IV report released on 2 April.
“The large drop in oil prices will lead to a substantial deterioration in fiscal and external balances,” the fund says in a statement. “In sharp contrast to previous years, the budget will be in deficit from 2016 onward and the current account surplus will largely be eliminated. While there is no immediate concern about fiscal sustainability under staff’s oil price assumptions, additional spending and revenue measures worth about 5 per cent of non-hydrocarbon GDP are warranted over the medium term to secure intergenerational equity in the context of low oil prices.”
The report on Article IV consultations says the government formed in 2013 has cut the growth of current spending and is reviewing capital spending with the aim of developing a medium-term plan that could encompass new revenue-raising measures.
“Discussions with key stakeholders on appropriate revenue-raising options could start later this year,” the fund says. “The Ministry of Finance is preparing a medium-term strategy, planned for completion by mid-2015, to inform the budget process starting next year—an important step toward establishing a binding medium-term budget framework.”
The fund says the key issue discussed in Article IV meetings was the impact of lower oil prices.
“Qatar’s public finances remain sustainable at expected oil prices, but in contrast to the recent past, projected budget balances no longer appear consistent with intergenerational equity,” the fund says. “Measures to improve the budget balance by 5 per cent of non-hydrocarbon GDP should be implemented gradually over the medium term.”
The fund says the government should set medium-term fiscal objectives, make annual budgets binding and increase the transparency of its accounts.
“The prospects of persistently low oil prices and slowing medium-term growth also call for intensification of diversification efforts through further improvements in the business environment, higher education quality, and labour market reforms, which would also make growth more inclusive,” the fund says.
The fund says the government’s capital spending programme could lead to overheating in the short-term and produce over-capacity in the medium term.
“Recent progress in improving public investment management to tackle these risks is welcome,” the fund says. “Consideration should be given to raising the real estate transaction fees to deter speculators and further increasing land supply.”
The fund says the banking system remains sound and regulations are improving.
The fund forecasts Qatar’s GDP will fall 9 per cent in 2015. Real growth, however, could accelerate to about 7 per cent as the Barzan field begins natural gas production.
“Non-hydrocarbon growth is expected to remain in double digits in 2015 as the path of public expenditures is unlikely to be affected by oil market ,” the fund says.
The IMF says Qatar’s current account surplus is forecast to fall to $10bn in 2015 from $52.8bn in 2014.
Qatar: growth and current account, 2014-20
2014E 2015F 2016F 2017F 2018F 2019F 2020F
GDP (QR bn) 764.4 696.3 717.3 795.0 859.8 916.1 968.6
account ($bn) 52.8 10.0 1.4 5.2 6.1 5.9 5.5
Source: IMF Article IV report, 2 April 2015