Economy and Trade
Qatar, once one of the poorest Gulf states, is now one of the world’s fastest-growing economies, and the wealthiest country in the world measured by GDP per capita, due to the exploitation of large oil and gas fields since the 1940s. The country was a British protectorate until 1971, when it declared independence, following Bahrain in refusing to join the United Arab Emirates. Oil, gas, and upstream and downstream industries are the mainstay of the Qatari economy. Qatar is the world’s largest exporter of liquefied natural gas (LNG). The government is seeking to exploit revenues from oil and gas to diversify the economy. It is also seeking to encourage the development of the private sector and a knowledge economy. Qatar is home to the Qatar Financial Centre (QFC), a financial and business center established by the government in 2005 to attract international financial services and multinational corporations, and develop the market for financial services in the region.
Economic Policy over 12 Months
In its annual assessment of Qatar, published in March 2011, the International Monetary Fund (IMF) praised the authorities for implementing prudent policies during the global economic crisis “which, coupled with an increase in gas production, have contributed to maintaining strong economic growth while safeguarding financial stability.” The IMF added that Qatar’s economic outlook is favorable, despite vulnerabilities to gyrations in hydrocarbon prices and global financial shocks. However, the IMF added that the authorities should carefully monitor aggregate demand to prevent the resurgence of inflationary pressures. In the medium term, increasing productivity in the non-hydrocarbon sector will be key to promoting economic diversification, the organization concluded.
The IMF added that the current expansionary fiscal stance was broadly appropriate in view of infrastructure investment needs and the comfortable fiscal position, but recommended that authorities stand ready to adjust policies if demand pressures re-emerge. The IMF also encouraged the authorities to continue saving their hydrocarbon surpluses over the medium term to facilitate intergenerational equity. It stressed that containing current expenditures and broadening the tax base will be critical to reducing the budget’s dependence on hydrocarbon revenues. The IMF underlined the importance of strengthening fiscal institutions to support these goals and welcomed the authorities’ intention to establish a macro-fiscal unit and a debt office.
The IMF said that that the main challenge for the central bank will be to manage the credit cycle without fuelling inflation. Given the pegged exchange rate (with the US dollar), they recommended the central bank rely on macro-prudential instruments to help contain credit growth and potential surges in capital inflows. The IMF added that fixing against the dollar remains appropriate, but encouraged the authorities to develop their technical and operational capacity in the event of a switch to an alternative exchange rate regime in the context of monetary union.
The IMF stressed the essential need to safeguard financial stability and welcomed the creation of the Financial Stability Unit and the results of stress tests, which show the banking system’s resilience to market and credit risks. The IMF also supported the authorities’ plans for establishing a single financial regulator to ensure harmonization of regulation and to close regulatory gaps.
In June 2008, the government launched its National Vision 2030, “which aims, through sustainable development, to transform Qatar into one of the world’s most advanced countries within two decades.” The vision has four pillars: social, economic, environmental, and human development. In March 2009, the Qatar Science and Technology Park (QSTP) opened. The Park is an integral part of Qatar’s National Vision 2030, and involved an investment of more than US$800 million.
Economic Performance over 12 Months
Qatar continued to deliver an impressive economic performance in 2010 and 2011. The IMF estimated overall real GDP growth rebounded to 16% in 2010 and is projected to accelerate to 20% in 2011.
Qatar has enjoyed a solid start to 2011, benefiting from higher energy prices and avoiding the political turbulence which occurred in many countries across the Middle East and North Africa (MENA) region. In August 2011, a report by the Abu Dhabi-based Arab Monetary Fund (AMF) also said that strong oil prices along with high gas exports would boost Qatar’s real GDP by 20% in 2011, maintaining its position as one of the world’s fastest-growing economies. The report expected Qatar to rebound into inflation of around 3% in 2011 after recording a deflation rate of 2.6% in 2010, reflecting a sharp fall in domestic rents. It noted that inflation stood at 1.2% in the first quarter of 2011.
The IMF says that continued government investment will keep growth high beyond 2011. While the self-imposed moratorium on increasing gas production after 2012 will lead to a sharp tapering off of growth in the hydrocarbon sector, government investments will support an average growth of 9% in the non-hydrocarbon sectors during 2012–15.
Headline consumer price inflation is projected at 4% over the medium term, as rents stabilize due to a gradual narrowing of the current excess capacity in real estate. Non-rent inflation, however, could resurge as both the recovery in international commodity prices affecting Qatar’s import basket and growth in domestic demand continue. The fiscal and external balances are projected to remain in surplus through 2015.
The AMF report said that Qatar’s budget recorded an estimated surplus of 12% in 2009–10 against 14.1% in the previous fiscal year, and that preliminary projections show there will be a surplus of around 10.6% in 2011.
The AMF added that the current account surplus widened to US$21.09 billion in 2010 from US$10 billion in 2009, and is expected to reach 26.4% of GDP in 2011. The report showed Qatar’s exports totaled US$67.2 billion in 2010 while imports stood at nearly US$35.7 billion, leaving a trade surplus of US$31.5 billion.
Support for Inward Investment and Imports
The Ministry of Economy and Commerce says that it is seeking to make the country an ideal oasis for investors and investment activities. The Qatar Investment Promotion Department, part of the Ministry of Economy and Commerce, provides information and support to foreign investors.
Qatar provides a wide range of incentives to investors. These include: no custom duties on the import of machinery, equipment, and spare parts; exemption from income tax for companies for 10 years; and no export duties or taxes on corporate profits for predetermined periods.
GDP growth: 16% (IMF, 2010)
GDP per capita: US$179,000 (2010 est.)
CPI: −2.6% (2010 est.)
Key interest rate: 5.5% (December 31, 2009)
Exchange rate versus US dollar: QR3.64 (fixed)*
Unemployment: 0.5% (2010 est.)
FDI: US$26.38 billion (December 31, 2010 est.)
Current account deficit/surplus: US$20.11 billion (2010 est.)
Population: 848,016 (July 2011 est.)
* Qatari riyal
Source: CIA World Factbook except where stated