By Pratap John/Chief Business Reporter

Qatar’s dollar peg “remains appropriate”, the IMF has said in a report.

The International Monetary Fund holds the view that the fixed exchange rate regime has anchored prices of tradables and provided stability to income flows and financial wealth, given the dominance of dollar-denominated hydrocarbon exports.

The IMF staff analysis suggests that the global share of Qatar’s non-hydrocarbon exports and the share of Qatar’s imports in GDP have remained broadly stable in recent years.

On the basis of incomplete data, the composition of financial flows appears to have been relatively stable as well. The real effective exchange rate is stronger than the long-term average, consistent with high hydrocarbon prices, it said.

According to the IMF, Improving the public investment management process would help Qatar achieve better allocation of resources and high return on investment.

An integrated approach to public investment management, including rigorous procedures for selection and appraisal of projects would be highly desirable, requiring substantial capacity building and deeper cooperation among various stakeholders.

The IMF noted that Qatar is pursuing ambitious fiscal reforms and the commitment to limiting spending over-runs, a medium-term focus in the budget process, elements of performance budgeting, and implementation of GFMIS are “very welcome steps” in the right direction.

Going forward, the annual budgets should be based on realistic hydrocarbon price assumptions and a more detailed multi-year expenditure framework.

The IMF said it stands ready to assist with setting up of the macro-fiscal unit. Noting that Qatar made substantial progress on enhancing financial sector regulation, the IMF said the authorities have issued the final Basel III circular, and unveiled a three-year Strategic Plan for Financial Regulation, detailing an ambitious agenda of risk-based regulation, macro-prudential oversight, and strengthened investor and consumer protection and financial infrastructure.

Banks remain well capitalised, liquid, and profitable, but policymakers need to continue to closely monitor lending standards, concentration risks, and cross-border activities of banks through an enhanced early warning system.

“There is scope to improve liquidity management via more flexible auction volumes and close cooperation between the QCB and Ministry of Finance,” IMF said.

IMF also noted Qatar has stepped up activities of the Qatar Development Bank and Enterprise Qatar, and SME agency. The Ministry of Finance has started outsourcing some activities and privatising selected assets.

The Strategic Plan for Financial Regulation envisages additional measures to strengthen investor and consumer protection.

Efforts are being made to improve the quality of educational curricula. Additional measures to improve the business environment, for example in the area of business registration, should be considered, IMF suggested.

‘Qatar remains exposed to several global risks’

By Pratap John/Chief Business Reporter

Qatar remains exposed to several global risks as a worldwide slowdown or financial turbulence can have adverse repercussions for the country, the IMF has warned.

Generally, revenue losses from lower oil and natural gas exports would likely be the most significant spillover channel for Qatar, given the high share of hydrocarbons in budget revenues and exports, the IMF said in a report released yesterday. 

This, it said, would particularly apply to a scenario with the protracted emerging market slowdown. However, the financial channel could become important given the Qatari banks’ remaining wholesale funding exposures abroad, their Mena linkages, and external financing needs for the infrastructure programme.

For example, global financial market volatility due to the exit from unconventional monetary policies in advanced economies or a renewed crisis in the Euro area could raise borrowing rates, while reducing credit availability, the IMF said.

A global financial shock would also reduce the value of Qatar’s sizeable foreign assets, it said.

The main medium-term risk remains the possibility of a sharp decline in oil and gas prices in light of the growing unconventional oil and natural gas supplies, sluggish global growth, and rising energy efficiency.

Indeed, there is anecdotal evidence that while the US shale gas boom has not meaningfully affected revenues so far, it is starting to put downward pressure on prices negotiated for future LNG supplies.

According to IMF staff calculations, a plausible drop in oil prices relative to the baseline (by $26.5 a barrel, which is the historical standard deviation of oil prices) could place the public debt ratio on an upward path.

The increase in the debt ratio would be more pronounced in a downside risk scenario, which also assumes smaller-than-expected returns from the public investment programme and cost over-runs. “That said, the more favourable scenario in which supply disruptions among other oil producers keep hydrocarbon prices high is also possible,” IMF said.

According to IMF, Qatar has “ample policy space” to deal with “unexpected circumstances” in the short term. Fiscal buffers and remaining natural resources are “sizeable” and spending is “unlikely to be affected” by a drop in hydrocarbon prices or market volatility in the near term.

Qatar Central Bank, IMF said, can inject liquidity into the financial system through its lending window and repo operations, and the government could achieve the same goal by managing portfolio allocations of the QIA and public sector enterprises.

The government also aided the banking system with equity injections and purchases of impaired assets during the global financial crisis.

The tail risk of transport disruptions is managed by building strategic stocks of food and construction materials, the IMF said.