Economy normalises post World Cup

Any fears that Qatar’s economy would contract following the FIFA World Cup in late 2022 and the geopolitical upheavals since have been confounded. A comprehensive analysis with positive outlook has been presented by the IMF in February, following a recent study visit by the Fund’s economists.
Growth has been steady, holding at 1.6% for 2023, with non-hydrocarbon growth at 1%, from a strong base. Inflation is subdued, down to 2.8% from a high of 5% in 2022. The IMF describes the economy as having ‘normalised’ post-World Cup. While there is considerable potential for unwelcome shocks to the global and regional economy, at this stage Qatar’s growth appears to be on a sustainable path.

Qatar’s principal export earnings are from oil and gas, but prudent fiscal management and long-term planning are helping diversification and sustainable growth, according to a new report by the IMF

Export earnings are still dominated by oil and gas, especially liquefied natural gas (LNG), of which Qatar is one of the world’s most significant producers. But tourism numbers are up, confirmed by figures from December 2023 and January 2024, just over a year after the World Cup, indicating that a key strategic objective to attract visitors away from the times of a major event is proving effective.
The IMF commended the Qatar Central Bank (QCB) for prudent management of public finances. Generally the policy has been counter-cyclical, with times of higher revenues used to pay down debt. There was rising government borrowing and considerable investment in infrastructure in the years leading up to the World Cup. The IMF commended the quality of the infrastructure, much of which should encourage ongoing economic development, rather than being solely to support the World Cup or other events.
Both the government and the IMF recognise the need to encourage more private sector-led growth. While it would be tempting to use revenues from relatively strong gas prices to stimulate short-term economic activity, this could inhibit strategic moves to diversify the economy. Accordingly, reducing government debt, keeping public sector wages under control, and prioritising long-term economic development is the correct approach, especially as Qatar has a well-established sovereign wealth fund.
The Fund notes that, should recessionary conditions be threatened, there should be flexibility for ‘productive and efficient spending’, together with measures to protect those who are economically vulnerable, without compromising an overall commitment to fiscal prudence. An example given is front-loading some smaller scale investment in community infrastructure projects.
Perhaps the only notable downside in the report was the observed over-supply in real estate. This could lead to a further increase in NPLs. Banks are not significantly exposed, and the construction sector may be more affected. The IMF noted that rent levels had stabilised, and commended regulation of the sector and measures such as tourism and mortgages for expats to support demand.
As well as diversification of the economy, the IMF paper discusses diversification of the tax base. As and when the economy diversifies, it would make sense to have more sources of revenue, helping to reduce volatility in tax revenues.
Qatar has the infrastructure in place to begin levying VAT, but so far the government has held back from doing so. This is out of concern for the impact on cost of living, which is a laudable reason. Over the medium to longer term, however, the issue is likely to return to the agenda. Similarly, there is a zero rate of local corporate income tax and personal income tax. The IMF recommends expanding and diversifying the tax base.
Against that, however, subsidies on fuel and food – which amount to a negative VAT – have been mostly withdrawn. The IMF recommends that ‘more can be done’ to eliminate remaining subsidies.
On energy consumption, there is a sensible tariff system which imposes a zero levy for use below a certain threshold, with progressively higher marginal rates for higher energy consumption. This encourages energy efficiency.
In addition to tourism and related services such as hospitality, Qatar has a strong higher education sector and business incubation hubs, which hold the promise of fostering growth in digital industries, especially artificial intelligence. Key to further economic progress is investment in human capital to support this development.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.