Qatar needs to manage its external risks, says IMF expert

By Pratap John/Chief Business ReporterQatar’s commitment to complete infrastructure plans by 2020 underscores the importance of “building contingencies” in case “risks materialise”, a senior International Monetary Fund economist has stressed.The “overall macroeconomic management in Qatar has been good,” contributing to strong growth, low inflation, accumulation of large fiscal buffers and international reserves and a resilient and stable banking system, Ananthakrishnan Prasad, IMF Mission head (Qatar), said.These trends, he said, were “projected to continue over the medium term.” “However, despite the availability of large financial buffers to cushion even a sizeable shock, Qatar will need to actively manage external risks, particularly in light of the large investment programme,” Prasad said in an interview with Gulf Times.A significant part of these investments will be implemented by the government and government-owned public enterprises; hence the government’s financial commitment through the budget and through contingent liabilities is very high, the IMF economist said.“Our downside scenario consisting of a one standard deviation ($28) drop in hydrocarbon oil prices each year from 2013 onwards (the combination of external shocks being expressed as a hydrocarbon price risk), suggests that the fiscal and external current accounts will turn into deficit by 2014 and 2016, respectively. “The elements of the contingency planning include prioritising and sequencing capital projects, refraining from further ad hoc increases in current expenditures, and boosting fiscal buffers and international reserves when oil prices are high.”Complimenting Qatar’s efforts at strengthening a medium-term budget framework (MTBF) to enhance the predictability of spending decisions and link its medium-term development plans to the budget, Prasad said: “Certainly more needs to be done.”He said Qatar’s budget planning now focuses on a three-year period, with the budget approval done on an annual basis for the upcoming fiscal year. “This is a very challenging task,” he said. This process has been started to ensure that budgets perfectly fit in with the realisation of the key objectives and goals of government policy and increasing its focus on outputs and results recorded by the ministries and government agencies. “Thus far, as we understand, the MTBF aggregates expenditure proposals from about 60% of ministries and government agencies representing about 90% of total expenditures. Currently, the focus is on strengthening the MTBF, which requires that the credibility of the annual budgets is strengthened, parallel efforts are made to build macroeconomic forecasting through a macro-fiscal unit, and the capacity at the Ministry of Economy and Finance and other ministries is enhanced,” the Washington DC-based Prasad said.Asked whether the IMF forecast of 5.2% real GDP growth in Qatar this year would pick up in the medium term, the IMF Mission Head (Qatar) said: “The projected headline real GDP growth of 5.2% for 2103 should by no means be considered as low, since this is merely a reflection of constant LNG production after 2012. “After completing its 20-year investment programme in the hydrocarbon sector, the government has now shifted its focus to economic diversification and growth in non-hydrocarbon sectors. Accommodative monetary conditions, continued high capital spending through the budget, and implementation of large projects by public enterprises will continue to support growth in the non-hydrocarbon sectors in the range of 9 to 10% over the medium term in construction, transport and communications, trade and hotels, and services sectors,” Prasad said.