As the 2013/14 fiscal year drew to a close, the IMF expressed its optimistic outlook for Qatar for the upcoming year, following a recent visit. That report – combined with a cheery business sentiment survey from the private sector and a jump in 2013 profits for Qatar Exchange-listed firms – reflects refreshed momentum for the Gulf nation, despite ongoing global economic uncertainty and regional tensions, both in the Middle East and Europe.
A higher-than-expected GDP growth rate was among the preliminary findings of the IMF’s February mission to Qatar, with the international team citing 6% expected growth in 2013, an upward revision from the Fund’s October 2013 “World Economic Outlook” estimate of 5%. The uptick was driven in part by expansion in the non-hydrocarbons segment, in line with government goals to diversify the economy away from its prominent gas industry. Moreover, Qatar’s significant liquefied natural gas trade with Asian export markets kept the Gulf state largely insulated from the ongoing global slowdown. Healthy current account surpluses posted in 2012 and expected in 2013 were another positive mark from the March 2014 report.
However, the IMF’s rosy tone was accompanied by a few caveats. It noted that the government’s significant spending on infrastructure ahead of the 2022 FIFA World Cup, no doubt a buoying force, also has the potential to overheat the economy in the near-term and runs the risk of overcapacity and low return in the medium-term. As for the near-term pitfalls, the IMF emphasised that Qatari authorities have the capacity to deal with immediate inflationary risks, but continued delays and cost overruns on World Cup-related projects are likely, due to the 2022 deadline and coordination challenges associated with concurrent building on such a wide-scale.
According to data from the Qatari Central Bank, released in March, public spending surged in the first half of the 2013/14 fiscal year, rising 33% to $25.6bn in the period from April to September. Overall, Qatar is expected to spend approximately $140bn in the run-up to the World Cup. In the interest of mitigating overheating and overcapacity risks, Qatari authorities are preparing a “critical list” of projects and have scaled back or phased some large ventures like the airport, metro and port, according to the IMF report. In a similar vein, the total number of new stadiums planned for the World Cup was reduced from 12 to eight. The IMF recommended a more “integrated” approach to public investment that includes project selection and appraisal procedures, along with a “comprehensive and transparent” treatment of projects in the budget.
Qatar has already taken steps to smooth out fiscal planning, noted the report. A new medium-term budget framework, which requires ministries to forecast spending to 2016/17 and provide performance details on project execution, has begun to be integrated into the budget process. Additionally, Qatari authorities are working to make the new macro-fiscal unit operational. The unit will provide detailed macroeconomic forecasts and spending forecasts, and could be supported with IMF advisors once complete.
Ali Shareef Al Emadi, Qatar’s Minister of Finance, told OBG, “The goal [of the medium-term budget framework] will be to align our future expenditure commitments with expected revenues, effectively finance the country’s development and ensure value for money across all kinds of expenditures. Such medium-term planning will also help in preparing for downside scenarios, for instance lower oil and gas prices, or if inflation is higher than expected.”
Nevertheless, the IMF report expressed doubts on the long-term efficacy of the World Cup spending spree. The extent to which the investment programme “will durably boost private sector productivity remains uncertain,” it said, though the authors conceded that the public investment programme is essential to “facilitate...economic diversification,” an imperative that the Qatari government has outlined in its long-term strategy.
Despite the concerns of the IMF, Qatari firms have indicated that they are optimistic about the country’s economic outlook, according to a new business sentiment survey from international business advisory firm, Dun & Bradstreet, in conjunction with the Qatar Financial Centre Authority. The first quarter survey from 2014, which looks at the plans and perceived challenges of a random sampling of private businesses in Qatar, found that business sentiment among those in the non-hydrocarbons sector was at its second-highest level in the past three years.