Qatar expects to save about $50bn each year until 2017 to take its international reserves — including sovereign wealth assets — to $485bn from the present estimated $215bn, according to International Monetary Fund estimates.
The Qatari authorities indicated that they would continue to formulate budgets based on conservative oil prices, which, given the baseline assumptions for oil prices in the medium-term, would in IMF staff's estimation enable continued large savings of about $50bn each year until 2017 through the Qatar Investment Authority, the Breton Woods institution said in its Article IV consultation report.
Surpluses are not excessive, and given the authorities' objectives of fully financing the budget from 2020 onwards, from non-hydrocarbon revenues, and building buffers against shocks, more saving in the medium-to-long term is warranted, mainly through a combination of containing current expenditures and prioritizing capital expenditure, the IMF said.
Fiscal space is "contracting" but still consistent with inter-generational equity, according to IMF medium-term fiscal sustainability exercise, it said, suggesting that the government should continue to build robust buffers in the medium term.
The government's fiscal stance is measured by the non-hydrocarbon deficit (excluding investment income) as a proportion of non-hydrocarbon gross domestic product (GDP). The stance is contractionary since the large increase in expenditures is more than compensated by increase in non-hydrocarbon revenues.
However, the overall fiscal surplus is projected to remain high at about 8% of GDP. This is due to a "marked" increase in corporate taxes — as new companies start paying the taxes — high investment income, and hydrocarbon revenue, according to Qatar.
"The projected non hydrocarbon revenues would finance 75% of projected expenditure in 2017-18," the IMF said, adding Qatar is confident of achieving its self imposed target by 2020.
Finding that the government has now shifted its focus to economic diversification and growth in non-oil sectors through targeted infrastructure investments; the report said increased government capital expenditure for infrastructure investments and accommodative monetary conditions are expected to sustain non-hydrocarbon growth of 9% to 10% in the medium term.
Any signs of "overheating" in the economy need to be managed through fiscal policy, in particular through restraining further increases in current expenditures to control aggregate demand, combined with liquidity management by the Qatar Central Bank (QCB) to absorb the structural liquidity surplus, and through macro-prudential measures to help smooth excessive credit growth and mitigate pressures from excessive leverage or risk-taking in specific sectors, it said.
Qatar's adoption of a three-year budget framework in the 2012/13 budget is a key transformation enabling more efficient sectoral planning and better utilization of resources by ministries and government agencies, it said.
The adoption of a medium-term budget framework (MTBF) would help to ensure that government spending is smooth and shielded from revenue volatility, according to IMF.
Gulf Times
23 January
