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."