The recently-released 2008 Article IV review of Qatar by the International Monetary Fund (IMF) is full of praise for the country’s economic management.

The IMF is positive on the outlook for Qatar’s economy in 2009 on the back of successes achieved in the gas industry.

Qatar boasts of an oil production capacity of nearly 800,000 barrels per day. In addition, the country has earned the status of the largest global exporter of liquefied natural gas (LNG). Qatar produces some 38 million tonnes of LNG annually, but is expected to produce 77 million tonnes a year by 2012. Over the past several years, Qatar expanded its gas business through joint production agreements with international oil firms.

Among others, the report put the growth of Qatar’s gross domestic product (GDP) at 16 per cent in 2008. Ostensibly, the figure is in real terms adjusted for inflation. Yet, Qatar suffered from a high inflation rate of 15 per cent last year. Altogether, Qatar’s economy grew by a remarkable 29 per cent in 2008 in nominal terms.

The IMF expects Qatar’s GDP growth in 2009 to remain in line with that of 2008. The matter relates to the coming onstream of fresh gas and petrochemical projects.

Additionally, the forecast calls for a lower inflation rate on the back of a declining trend worldwide in the aftermath of the financial crunch. Qatar imports most of its needs. Lower global economic growth due to declining demand should lead to a drop in prices.

Likewise, the IMF seems to be happy with the policy of linking the Qatari riyal to the US dollar.

The policy helps stabilise a relatively small economy like Qatar. According to the Economist Intelligence Unit, Qatar’s GDP amounts to $71 billion. The figure makes up less than one per cent of the size of US’s GDP.

On the other hand, the IMF has warned of fundamental challenges facing the Qatari economy.

According to the report, “The key challenges facing authorities are to lower Qatar’s high rate of inflation, continue to shield the economy from the global financial crisis, ensure that rapid credit growth does not undermine bank soundness, and diversify the economy.”

True, the general trend calls for lower inflationary pressures in the world in 2009.

However, inflation poses a general threat to Qatar’s economic well-being at large due to firm government expenditures.

To be sure, public sector spending has grown in importance after the global financial crisis. It is believed that the credit crunch has adversely affected confidence among private sector investors, hence the need for public sector investments.

Qatar’s budget for the fiscal year 2008-09 is expansionary in nature. Total expenditures are up by 46 per cent over the allocated amount for fiscal year 2007-08. In particular, officials allocated a large chunk of funds for spending on infrastructure projects notably expanding road network.

Qatar’s fiscal year commences at the start of April. Still, the authorities suggest the upcoming budget for fiscal year 2009-10 would be the largest in the country’s history in terms of projected spending.

Qatar’s GDP per capita on purchasing power parity (PPP) basis is the second highest in the world after Luxembourg. The 2008 Human Development Index puts Qatar’s GDP per capita on PPP basis at $72,969 per annum. The result is testimony to some correct choices made by the authorities.

Nevertheless, officials must work hard to make the economy less dependent on the hydrocarbons sector. The energy sector accounts for more than two-thirds of Qatar’s treasury income.

The extraordinary reliance on oil and gas puts the economy at the mercy of external shocks.

Gulf News

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