Qatar's real GDP growth is expected to moderate to about 2.7 percent in 2016 but is projected to reach 3.4 percent in 2017 as the country effectively adjusts to the new reality of sustained lower energy prices, according to the International Monetary Fund (IMF).
In a new research note, the IMF said the rise in 2017 growth reflects an expansion in the non-hydrocarbon sector due to World Cup-related spending and supported by added output from the new Barzan gas project.
It added that during 2017–18, the Gulf state will see further subsidy cuts, increase in public fees, a moderate recovery in global commodity prices and the implementation of a VAT which will drive inflation, which is expected to moderate back to low levels over the medium term.
"Fiscal and external balances are projected to persist in the near term, though improvements are projected for the medium term, as hydrocarbon prices recover slightly and fiscal adjustment advances," the report said.
The IMF said the main risks to the economy are related to the possibility of lower hydrocarbon prices compared to the baseline assumption and to the public investment program. In addition, the prospects of further rises in the US interest rates may complicate efforts to bolster economic growth.
It noted that spillovers to the non-oil sector would be transmitted through slower government spending and declining liquidity in the banking system.
The report said financial risks in the banking sector are moderate as banks’ balance sheets remain strong. However, the loan-to-deposit ratio has risen, possibly implying increased credit risk.
Moreover, the expansion strategy of some banks into riskier foreign jurisdictions could potentially increase downside risks for their asset quality, it added.
The drop in international oil and gas prices has put considerable pressure on Qatar's fiscal and external positions. However, the IMF said the authorities’ policy response has been adequate, underpinned by cuts to current expenditures and renewed efforts towards increasing non-oil revenues.
The authorities’ plan to implement excises on tobacco and sugary drinks starting in 2017 in line with a GCC-wide agreement will yield additional revenue.
The IMF said complementary revenue measures should be explored, including broadening the corporate income tax base to include GCC companies.
It added that while Qatar’s competitiveness indicators are the strongest in the GCC region, there is scope for improvement compared to non-GCC peers. The authorities have implemented a number of measures to boost diversification, including strengthening the private sector, promoting SMEs, and incentivising nationals to work in non-government jobs.
Additional measures are needed to further strengthen the business environment, including by enhanced contract enforcement, and improved education quality, said the research note.
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