By Andy Sambidge
IMF predicts 'favourable' prospects for Gulf state despite slowdown from 19% last year
Qatar's GDP growth is projected to reach 19 percent in 2011, with the outlook for this year still "favourable" despite a slowdown, the International Monetary Fund (IMF) has said.
Growth in the world's biggest LNG producing country is set to slow to six percent in 2012 and more work still needs to be done to reduce Qatar's "vulnerability" to hydrocarbon price fluctuations, the IMF said in a new analysis of its economy.
"The economic outlook for 2012 and beyond looks favorable, despite increased external risks. The main downside risks are lower hydrocarbon prices and potential disruption in transportation of liquefied natural gas (LNG) due to increased geopolitical tensions," its executive directors said in a report.
Real GDP growth is projected by the IMF to moderate to 6 percent in 2012, with real hydrocarbon GDP slowing down to 3 percent, as LNG production remains constant due to the self-imposed moratorium on new hydrocarbon projects.
It said average consumer price index inflation is projected at 4-5 percent over the medium term, as rents stabilise due to a gradual decline in excess capacity in real estate.
The IMF report said Qatar has weathered the global crisis with high growth, and large external current account and fiscal surpluses.
Government intervention in the banking system has ensured financial stability, and it is using its fiscal space to implement a large public spending program to maintain strong growth in the nonhydrocarbon sector.
The report also said the banking sector remains profitable and strong with a capital adequacy ratio of 22.3 percent and non-performing loans ratio of 2.3 percent at end-June 2011.
Headline inflation is projected to remain subdued, but inflation risks have risen due to domestic factors.
"The expansionary fiscal stance in 2011/12 thus warrants careful monitoring of aggregate demand to ward off risks of inflation. Fiscal policy must continue to maintain a careful balance between spending on infrastructure to sustain non-inflationary growth, and saving and investing hydrocarbon surpluses abroad to generate sufficient income to finance future budgets," the report said.
It added that Qatar's banking system "has the ability to withstand credit and market risks" although individual banks need to be monitored for stress.
"In the medium term, fiscal policy will need to balance sometimes competing objectives of economic stabilisation, development and generating intergenerational savings," the IMF report said.
"Given the authorities’ objective of fully financing the budget from 2020 onwards from its nonhydrocarbon revenues, and for building buffers for shocks, the authorities will need to increase savings over the medium term."