Qatar’s economy is expected to expand by 3 percent over the medium term helped by continued investments related to FIFA World Cup and as a large natural gas facility comes onstream, World Bank (WB) has said in its latest report.
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Qatar’s economic growth is estimated to have recovered to 2.1 percent in 2018, as activity has gradually recovered from the effects of a diplomatic rift with some GCC neighbours.
The outlook remains positive with growth expected to rise to 3.4 percent by 2021 driven by higher service sector growth as the FIFA World Cup draws nearer, the report said.
In addition, WB said, the higher infrastructure spending on Qatar National Vision 2030 projects aimed at diversifying the economy should help offset falling investment spending on FIFA projects.
“Finally, hydro-carbon sector growth is also expected to pick up as the Barzan natural gas facility comes online in 2020, and as the expansion of the North Field gas projects is completed by 2024,” it said.
Monetary policy is expected to gradually tighten as Qatar’s central bank resumes raising interest rates to restore the spread versus US policy rates, and to attract FX inflows into the banking system, the WB report said.
Public finances are expected to remain in small surplus, supported by recent tax reforms and the introduction of VAT over the medium term.
A recovery in imports, driven by capital goods related to infrastructure spending, should keep the current account surplus in single-digits in contrast to surpluses of over 30 percent prior to 2014.
“A large public investment programme for 2014-2024 has been pared back, with FIFA 2022 projects given priority. Although the government has delayed the VAT implementation, it has announced ‘sin taxes’ that include 100 percent excise duties on tobacco and energy drinks and a 50 percent levy on sugary drinks,” the report said.
“The 2019 budget projects a 3.6 percent decrease in capital spending as some FIFA projects are completed. This should help offset a 7 percent increase in current spending, and limit growth in total spending to 1.7 percent. The 2019 budget projects a surplus of $1.2 billion or about 0.6 percent of GDP, but outturns are likely to be higher on account of conservative budget assumptions,” the report said.
Stating that Qatar’s economy has largely overcome the constraints posed by the continuing diplomatic rift with GCC neighbours, WB has said in the report that a resolution of this situation would help boost investor confidence.
“Key external risks include risks of volatility in global energy prices, regional instability risks, and global financial volatility that affects capital flows and costs of funding although these are mitigated by the return to fiscal and current account surpluses’ it said.
