Qatar Fiscal Deficit to Narrow on Increasing Non-Oil
Revenue, IMF Says
January 08, 2017
Qatar’s fiscal deficit will narrow to 8.3
per cent of GDP this year and fall further
to 6.1 per cent next year on higher non-oil
revenue, the IMF said on Wednesday.
"The
drop in international oil and gas prices has
put considerable pressure on the fiscal and
external positions," the IMF said. "However,
the authorities’ policy response has been
adequate, underpinned by cuts to current
expenditures and renewed efforts towards
increasing non-oil revenues."
Qatar, the world’s largest exporter of
liquefied natural gas, implemented a raft of
reforms aimed at lowering expenditure and
shoring up non-oil revenue. In 2015 it
increased electricity and water tariffs and
hiked petrol prices last year. It is
planning to impose taxes on sugary drinks
and tobacco, while the GCC-wide introduction
of a value-added tax in 2018 will also help.
The
IMF recommended that Qatar broaden the
corporate income tax base to include GCC
companies.
"The
pace and the composition of the adjustment
should strike a balance between revenue
increases and expenditure restraint in the
medium term," the IMF said. "Containing the
wage bill, public service benefits,
subsidies and goods and services expenditure
are some avenues to rein in public spending,
while preserving growth-promoting public
investment."
Qatar, which sold bonds domestically and
internationally to finance its deficit last
year, should strike a balance between debt
issuance and drawing down financial
reserves, the fund said.
"Deficit financing should remain supportive
of private sector credit growth without
jeopardizing external debt sustainability,"
said the fund. "Financing the deficit mainly
through external borrowing as well as asset
drawdown seems appropriate, taking into
consideration the risk-return trade-off
between the cost of external borrowing
versus the return on accumulated assets."
Growth is expected to pick up to 3.4 per
cent this year from 2.7 per cent last year
thanks to non-oil sector growth driven by
2022 Fifa World Cup-related spending and the
additional gas output from Barzan project,
the fund said.
Meanwhile, a strong US dollar is hurting
Arabian Gulf economies, including Qatar,
while rising US interest rates could stifle
growth. The IMF recommended that Qatar
revisit its peg to the dollar.
"The
peg to the US dollar continues to serve
Qatar well," said the fund. "Nevertheless,
given that the Qatari economy is evolving
towards more diversification, the pegged
exchange regime should be periodically
assessed over the medium term to ensure it
remains the best option."