Feb 03 2012 |
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Qatar needs to gear up to reduce its dependency on hydrocarbon: IMF
By Satish KanadyDOHA: Qatar's intention to reduce its fiscal dependency on the hydrocarbon sector will take considerable amount of time. The recent increases in its current expenditures and the large public sector salary and pension increase for Qataris mean that the country needs to take more efforts to achieve its goal to fully finance the budget from non-hydrocarbon revenues and returns from Qatar Investment Authority's (QIA) investments by 2020.
The International Monetary Fund (IMF) noted in its latest country report that the increases in Qatar's current expenditures and the hike in the salary and pension for Qataris announced in September 2011 has led to an expansionary fiscal stance in 2011-2012. It is a setback for the narrowing of the deficit by 3-4 percent points of GDP.
The non-hydrocarbon revenue would cover about 63 percent of the total expenditure by 2016-17, implying Qatar would need more efforts and time to achieve its target. To meet its objective and for building buffers for shocks, the Fund encourages Qatar to save more.
The hydrocarbon primary deficit, which is an indication of how dependent the budget is on hydrocarbon revenues, declined from 50 percent in 1990 to 14 percent of non-hydrocarbon GDP in 2009. This was reversed in 2009-10 as oil prices collapsed and GDP growth slowed down in 2009 and government expenditures expanded substantially in 2010. The expansionary fiscal policy of 2010 helped offset the negative effects of the global financial crisis on the Qatari economy.
Expansion in the non-hydrocarbon sector and the eventual implementation of the value added tax will significantly broaden the non-hydrocarbon tax base and therefore enable some increase in non-hydrocarbon fiscal revenues. Given the plans for the announced large capital projects, adjustments in current expenditures would be the most feasible way to reduce the dependency of the budget on hydrocarbon revenues. To meet the country's 2020 target of fully financing the budget from non-hydrocarbon revenues, and for building buffers for shocks, IMF encourages Qatar to save more, especially during booms.
© The Peninsula 2012
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