Getting the policy mix right for high growth without overheating is never easy. Credit for Qatar’s continued boom is in large part due to its finance minister
It has been a turbulent year for the Middle East and North Africa, but in one corner of the region at least there is still a positive economic story to be told. While political change has shaken the region and many economies have struggled, Qatar’s minister of economy and finance, Yousef Hussain Kamal, continues to oversee dramatic growth.
It is not simply a case of a small state with plentiful oil and gas reserves. Many countries in the neighbourhood are oil-rich with small populations, and yet some, like Kuwait and the UAE, saw their economies shrink in 2009. Qatar is alone in having enjoyed double-digit GDP growth every year since 2007 – with growth accelerating to 16% in 2010.
Analysts forecast that strong growth will continue through 2011 and 2012, with HSBC predicting a 13.1% rise in GDP this year and 11.5% next year. The country already has one of the highest levels of GDP per capita in the world, at $75,668.
Massive infrastructure investments are planned, but the government’s budget is expected to stay in the black. The surplus in 2010 was 11.6% of GDP, only bettered by Kuwait. Nevertheless, the government remains willing to reinvest an increasingly large chunk of the country’s vast reserves domestically.
“Total expenditures in the current fiscal year are budgeted to increase by 18.7% to $38.4 billion, with an emphasis on development expenditures,” says Kamal. “The rationale behind this is simple. We are in the midst of a major programme to expand and modernize the country’s infrastructure: port facilities, airports, highways and a mass transport system among others.”
The speed of growth creates the risk of bubbles and overheating, but the government has been taking money out of the market by issuing bonds. Growth in household consumption and private-sector credit have slowed in recent years and consumer inflation, at 1.9% y-o-y in July, is low.
“We try to balance fiscal policy and monetary policy,” says Kamal. “The fiscal policy is expansionary given the rising budget outlays, while on the monetary side, actions have been taken to reduce excess liquidity.”
Qatar has been helped by being largely insulated from political unrest this year. In economic terms, diversification remains the biggest challenge, although with oil and gas prices so high it is difficult for other industries to emerge from the shadows.
Efforts to develop the Qatar Financial Centre have so far suffered from a perception among international bankers that it only exists for domestic purposes. However, there has also been a concerted attempt to develop education and research and development services, although it will be years before Education City and the Qatar Science and Technology Park can be properly assessed.
Meanwhile, as with any small, export-oriented economy, Qatar remains vulnerable to external shocks and a potential downturn in international markets. But Kamal believes that Qatar is relatively well positioned to cope. “A large part of our trading relationship is with countries in Asia that are performing well and have a promising outlook such as India, Singapore, South Korea and China,” he says.
“I see limited risk for the economic outlook for the remainder of the current budget year, unless in the very near term the world faces another major financial crisis that would severely impact economic growth worldwide,” Kamal adds.