Record Inflation

Qatar

Economic News

22 Jul 2010
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Qatar's inflation rate has hit a new record high of 15% in the first quarter of 2007, with increases in rent, fuel and energy prices being the main cause. This comes in spite of government confidence that the country had seen the worst of the problem. Meanwhile, Moody's Investors Service annual report on Qatar says the country's investment grade country ceiling and outlook are both categorized as stable.



Prior to 2004, inflation in Qatar was 3%, rising to 11.8% in 2006 while excess demand for housing and office space began putting pressure on the construction sector in 2003. Meanwhile, the cost of imports from the EU rose as the value of the Qatari riyal dropped against the euro. An expansionary fiscal policy also stocked inflationary pressures.



Nevertheless, the governor of the central bank, Sheikh Abdullah bin Abdulaziz Al Thani, said he is sure the high rate of inflation in the last two years is a temporary phenomenon. "As we gradually overcome the bottlenecks in the supply side, the rate of inflation will decrease and may drop to 6-7% by the end of 2007," Al Thani told OBG.



The government has said that bringing inflation down to a single figure is a priority. However, the index of rent, fuel and energy, which accounts for more than 20% of households' consumption expenditures, has risen by about 35% year-on-year in the first quarter. The index of the group showed a 9.1% jump, compared with the last quarter of 2006. According to government data, the general price level jumped by 3.7% in the first quarter of the year.



The real estate sector is cited as the cause for much of the inflationary pressure. Ahmed al-Shaer, president of ERA Real Estate, told OBG, "I'd put the figure for demand outstripping supply at four to one, and I don't see the price of rents coming down for the high-end units which are targeted at the professional expatriates."



The government is working to ease housing capacity issues, with plans to build new accommodation in an effort to rectify the imbalance and reduce inflation. Barwa Real Estate Company is building 2000 low-rent houses on the outskirts of Doha. The complexes in Msaimeer, south of Doha, and Sailiya in the west are expected to take some of the financial strain off low-income families.



However, feasibility studies carried out by Bawra suggest Qatar will need at least 40,000 housing units to accommodate foreign workers and their families in the future. The economic boom being experienced in Qatar is set to continue and large-scale immigration of foreign workers is needed to fill jobs in the oil and gas industry.



Moody's annual report sets the foreign currency country ceiling for bonds at 'Aa2', based on the foreign currency government bond rating of 'Aa3' and its assessment of a minimal risk of a payments moratorium.



However, assistant vice-president of Moody's, Kenneth Orchard, author of the report, said there are factors holding Qatar back. "Qatar's political, administrative and legal institutions are weaker than those of most other 'Aa-' or 'Aaa'-rated countries, and the poor quality, scope and timeliness of official data act as an impediment to economic analysis," said Orchard.



He also identified regional geopolitical instability as a potential problem. "Since the economy is highly reliant on hydrocarbon production and exports, it is exposed to potential swings in international energy prices, although the fiscal and external current accounts are less sensitive to a downturn in energy prices than those of other hydrocarbon-exporting countries," he said.
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