By Pratap John
Chief Business Reporter
Qatar’s budget outlook appears “sustainable” as the country has “accumulated” substantial financial buffers and “started budget reforms” already before the oil prices began to fall, according to the International Monetary Fund (IMF).
But IMF mission chief (Qatar) Martin Sommer suggested that the country’s policymakers need to consider additional saving measures over the medium term to make sure that Qatar saves sufficient resources for future generations.
In an interview with Gulf Times, Sommer said Qatar’s GDP growth would remain strong in the near term. Growth could accelerate to about 7% this year as public investments gather pace and the Barzan field begins natural gas production.
“Lower oil prices should not have much impact on growth this year because budget spending will not be affected in the near term. Next year, growth could still be robust at 6.5%,” Sommer said.
He said that this year the IMF consultation with Qatar focused on three main issues: how to adjust to lower oil prices, how to balance the benefits and risks of large public investments and how to maintain good health of the banking system.
Sommer said it was useful to keep in mind that these high growth rates were driven by big public investments and a strong inflow of foreign workers.
“Both are temporary factors. The effect of lower oil prices will also be felt over time. As a result, Qatari GDP growth could slow down to around 4% over the medium
term,” the IMF economist said.
He said “large public investments have fuelled an expansion” in construction, finance and trade. The incoming expatriate workers have boosted various service sectors.
Going forward, it would be important that the large public investments lead to further diversification and productivity improvements, so that Qatar sustains its growth momentum. The new investment management system developed by the Qatari policymakers could help, for example, by deepening the cost-benefit analysis of projects.
Asked whether Qatar’s hydrocarbon sector would trail the non-hydrocarbon sector on growth, he said: “The hydrocarbon sector will get a temporary boost from the launch of Barzan Gas Project, but could otherwise stagnate. Overall, non-hydrocarbon expansion should continue exceeding hydrocarbon growth.”
On how the low oil price would impact the Qatari economy, Sommer said: “Growth will remain strong for now. But Qatar is already being affected by low oil prices because more than 90% percent of budget revenues and exports are tied to activities of the hydrocarbon sector.
“Crucially, the price of Qatar’s LNG is linked to the price of crude oil. The big drop in oil prices will therefore lead to a substantial deterioration of the budget and trade balances. The budget could actually fall into a deficit from 2016.
“The good news is that Qatar has accumulated substantial financial buffers and started budget reforms already before the oil prices began to fall. And so the budget outlook appears sustainable. But policymakers will need to consider additional saving measures over the medium term to make sure that Qatar saves sufficient resources for future generations.”
He said weak growth in Asia had contributed to lower global commodity prices, including for oil and natural gas, although this was not the only reason why commodity prices fell.
“Qatar will therefore lose substantial hydrocarbon revenues but it will also benefit somewhat from lower import prices,” Sommer said when asked about the impact on the country because of the slowdown in some of Qatar’s markets – emerging Asia in particular.
On Qatar’s banking sector, Sommer said: “Banks remain sound and have ample capital and liquidity buffers. The financial sector reforms are also proceeding. As usual, emerging risks and vulnerabilities need to be monitored. These include rapidly growing credit to certain sectors and across border, and risks from lower oil prices.”
Martin Sommer: Qatar’s policymakers need to consider additional saving measures over the medium term.
