ously held abroad. The economy rebound- QATAR ed in the third quarter, and growth for the Recent developments year as a whole is anticipated at 2.2 per- cent, the same as in 2016. Headline infla- Qatar has been affected by, but is success- tion remained muted at 0.5 percent yoy in fully adjusting to, the diplomatic rift with December. Table 1 2017 its Arab neighbors that started in mid- Qatar’s gas exports have also continued P o pulatio n, millio n 2.4 2017. The severing of diplomatic ties and despite the diplomatic rift and its LNG GDP , current US$ billio n 164.0 freezing of trade flows by Saudi Arabia, market share remains around 30 percent, GDP per capita, current US$ 69705 the UAE, Bahrain, and Egypt in June 2017 mainly supplying Japan and other cus- Scho o l enro llment, primary (% gro ss) a 103.0 led to an initial sharp drop in imports of tomers in Asia. The steep fall in imports Life expectancy at birth, years a 78.5 40 percent yoy in June 2017, and contrib- mid-2017 and rising export earnings due uted to an increase in food inflation. It also to the partial recovery in global energy Source: WDI, M acro Poverty Outlook, and official data. Notes: dented investor sentiment, visible in a sell prices helped to shift the current account -off in equities, squeezed commercial bank back into surplus in the first 3 quarters of (a) M ost recent WDI value (2015) access to foreign funds as non-resident 2017, after posting a deficit of 5.5 percent deposits at Qatari banks dropped sharply, in 2016 (the first in 17 years). Foreign ex- rising interbank rates and falling foreign change reserves are recovering, rising exchange reserves. from a low of US$35.6 billion in Septem- However, the impact has been short-lived. ber 2017 to US$37.6 billion by end-year. A re-routing of trade (using Iranian air- Fiscal consolidation, and the recovery in space and Omani ports, and opening the energy receipts more recently, has placed GDP growth is estimated to have re- new US$7.4 billion Hamad Port), and a the fiscal deficit on a narrowing trajectory. diversification of sources of imports In response to the fall in international oil mained flat at 2.2 percent in 2017, in part (purchasing food through Iran, Oman, and gas prices, the government had cut reflecting the effects of the ongoing rift Turkey and China) and enhancing domes- back current spending and embarked on with its neighbors. However, growth is tic food processing. As a result, food infla- energy subsidy reform. Notably it had expected to strengthen in the medium tion has decelerated, while goods imports also pared back a substantial public in- are back to pre-dispute levels. The bank- vestment program for 2014-2024 to term to close to 3 percent, supported by ing system remains well capitalized, and US$130 billion from US$180 billion, priori- rising oil and gas output and 2022 FIFA asset quality strong, and the liquidity tizing projects related to the FIFA 2022 World Cup related spending. Reforms pressures that emerged mid-2017, have World Cup. As a result, the fiscal deficit is protecting foreign workers and introduc- waned. While non-resident deposits re- estimated to have declined to 5.0 percent ing permanent residency rights for expats main down 25 percent relative to mid- of GDP in 2017 from over 8.3 percent in 2017 levels, nevertheless, they have been 2016. The fiscal costs of dealing with the will help with longer-term diversification more than fully offset by an influx of gov- blockade will not pose a substantial risk to efforts. ernment deposits into the domestic bank- fiscal stability given huge financial buffers ing system of US$43 billion (26 percent of held by the sovereign wealth fund, the GDP) in public sector–mostly Qatar In- Qatar Investment Authority (QIA). vestment Authority (QIA)–assets, previ- FIGURE 1 Qatar / Goods Trade Balances FIGURE 2 Qatar / International Reserves, US$ billion Qatari Riyal, bn; percent change yoy US$ billion 40 70 30 20 60 10 50 0 40 -10 -20 30 -30 20 -40 10 -50 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 0 Trade balance Nominal export growth Dec-08 Jun-10 Dec-11 Jun-13 Dec-14 Jun-16 Dec-17 Nominal import growth Source: Haver. Sources: Qatar Central Bank, Haver. MPO 1 Apr 18 Absolute poverty is not an issue for citi- receipts help ease fiscal constraints, es downside risks to global LNG prices. zens. In the context of the National Devel- spending on the multi-year infrastructure Other external risks include regional insta- opment Strategy 2011-16 the authorities upgrade ahead of the FIFA World Cup bility risks, and global financial volatility have adopted a national relative poverty continues and as the US$10 billion Barzan that affects capital flows and cost of fund- line and a welfare measurement method- natural gas facility comes onstream in ing although these are mitigated by nar- ology to track living standards of the pop- 2020. Qatar’s peg to the US Dollar means rowing fiscal deficits and the return to ulation and identify vulnerable house- that monetary policy will gradually tight- current account surplus. On the domestic holds. This threshold is equal to the half of en in tandem with the US. Government front, delays in the implementation of the the median household’s income, and efforts to ease the costs and to lighten the VAT and other taxes will reinforce de- about 8 percent of Qataris in 2013 lived on effects of the blockade on the population pendence of public sector finances on hy- an income less than that—a share broadly will likely limit the scope for cutting drocarbons sector, which accounts for unchanged from 2007. Lower incomes spending sharply. Nevertheless, key tax nearly 90 percent of government revenues correlated with household dependency policy and administration measures, in- (directly and indirectly). ratio, job market status, educational cluding the introduction of a VAT and Qatar’s investment-driven growth strate- attainment, female headship and disabil- excises during 2018 are expected to fur- gy over the past decade has helped to ity. ther contain the fiscal deficit over the me- transform standards of living for citizens, Spatial differences in welfare exist, both dium term, although inflation should also but has also given rise to concerns includ- for monetary and non-monetary rise to close to 2.4 percent as a result in ing sustainability with persistently low measures, notably between more urban- 2018. A recovery in imports, in particular energy prices, signs of excess capacity and ized and less urbanized areas. Expatriate capital goods related to infrastructure demographic imbalances. Given the un- workers face additional challenges, from spending, should keep the current account certain medium-term outlook for the gas delays or withholding of wages, poor surplus modest in the near term. sector, the development of the non - working conditions, substandard employ- hydrocarbon sector is critical. Recent per- er-provided accommodation, irregular manent residency reforms are an im- recruitment practices and lack of infor- mation on how to enforce their rights. Risks and challenges portant step, and a first among GCC coun- tries, to help attract and retain highly skilled foreign workers needed to achieve Outlook In the near term, downside risks stem from the ongoing diplomatic crisis. Over long term objectives become a knowledge economy. In addition, Qatar will also need the medium term, the emergence of new to raise the productivity of its human and Growth is expected to recover to 2.8 per- suppliers in the United States, East Asia physical capital, and undertake structural cent in 2018, and rise further to an average and Africa and rising global gas supply reforms to improve the business environ- of 3 percent in 2019/20, as rising energy (including from Qatar’s North Field) pos- ment. TABLE 2 Qatar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 e 2018 f 2019 f 2020 f Real GDP growth, at constant market prices 4.0 2.2 2.2 2.8 3.2 2.8 Private Consumption 8.1 3.5 1.2 2.5 2.5 2.0 Government Consumption 1.1 -21.0 -2.5 0.2 0.0 -0.1 Gross Fixed Capital Investment 1.4 8.0 2.2 5.4 6.4 3.8 Exports, Goods and Services -0.8 1.7 0.5 2.5 3.0 3.4 Imports, Goods and Services -8.9 -3.9 -5.0 4.0 5.0 4.0 Real GDP growth, at constant factor prices 4.0 2.1 2.2 2.8 3.2 2.8 Agriculture 8.7 4.0 0.4 1.5 1.9 1.9 Industry 2.0 2.0 0.5 1.9 2.4 2.4 Services 8.6 2.2 6.1 4.7 4.8 3.6 Inflation (Consumer Price Index) 1.9 2.9 0.4 2.4 2.0 1.5 Current Account Balance (% of GDP) 8.5 -7.5 2.6 3.8 3.3 3.2 Financial and Capital Account (% of GDP) -7.7 6.4 -3.7 -4.9 -4.2 -4.4 Net Foreign Direct Investment (% of GDP) -2.8 -3.0 -2.8 -3.1 -3.3 -3.1 Fiscal Balance (% of GDP) 1.4 -8.3 -5.0 -3.7 -2.0 -0.4 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. MPO 2 Apr 18