Representatives of the International Monetary Fund visited Qatar in the first two weeks of November. The initial verdict is of progress on fiscal stability and economic diversification, while we await the full report
The FIFA World Cup 2022 was 12 years in preparation, and just four weeks in duration. One year on, a team from the International Monetary Fund (IMF) visited Qatar and the economic agenda has shifted significantly in the intervening period. While recovery from the Covid-19 pandemic and the World Cup dominated in 2022, now the pressing issues are a higher interest rate regime, diversifying the economy and maintaining fiscal responsibility.
The IMF staff team, led by Ms Ban Li, commended the post-World Cup stewardship of the economy, noting the sensible decision to use enhanced revenues from oil and gas, particularly from the expanding North Field liquefied natural gas (LNG) field, to pay down debt. Developments of the knowledge economy and the private sector generally, helping to diversify sources of export earnings and economic development, were noted.
The World Cup appears to have provided more than a temporary boost and has raised the profile of the country. Tourism has increased, for example. Qatar’s export earnings have been significantly boosted by sales of LNG long term contracts, especially to Germany and China. The former has sought a radical pivot away from importing gas from Russia following the escalation of the Ukraine conflict in February 2022, while in November of that year QatarEnergy signed a 27-year contract with Sinopec, the oil refining gas and petrochemicals group of China, to supply LNG.
Ms Li commented that after a ‘very strong’ performance in 2022, economic growth had normalised. Output was projected to expand by around 1.75% per year for the next two years, with the non-hydrocarbon sector growing at 2.75%. Medium term growth was set to increase to 5% annually, helped by production expansion of LNG and economic reforms under the National Vision 2030.
Inflation will likely moderate to 2% the IMF team added. Fiscal and current accounts are projected to remain in surplus over the medium term. The banking sector is relatively stable, although the ratio of non-performing loans has edged upwards, linked to pandemic-related restructuring of loans. The relative high provisioning of banks has mitigated the risks. The Qatar Central Bank has refined macro-prudential measures to further reduce risks associated with the external asset-liability mismatches, especially those of short maturities.
The IMF team recommended continued diligence to enhance banking sector resilience, and reforms to deepen domestic financial markets, noting that such measures are incorporated into the forthcoming financial sector strategy. Other recommended priorities are skills and labour market dynamism, embracing the digital economy, and preparing for the green transition and climate resilience.
The statement is encouraging, given the progress noted and the near-absence of critical comments. This reflects a maturation of economic policy-making in Qatar, and generally in the Gulf, in recent decades. While in the 1970s oil wealth may have been spent on trophy assets, to some degree, since then there has been growing recognition of the need for strategic investment and economic diversification, embodied by the National Vision 2030 strategic statement, and resistance to populist, short-termist measures that only generate short-lived growth by stimulating consumer spending without business development.
Priorities should cover both business development – growth in tourism, the knowledge economy and manufacturing; and financial development – development of local bond markets, balanced portfolio of investments by the sovereign wealth fund. A remarkably positive health check from the IMF team provides much encouragement towards achieving these goals. Once the full report is published, if there are more critical comments, there will likely be much in the way of helpful advice also.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.