Posted on January 06, 2017

Qatar’s plan to levy excise on tobacco and sugary drinks starting this year in line with a GCC-wide agreement will yield additional revenue, the International Monetary Fund has said. In a report following IMF’s mission to Qatar, the fund urged Qatar to explore complementary revenue measures, including broadening the corporate income tax base to include GCC companies.

According to the IMF Qatar’s “fiscal consolidation should be well-sequenced and take into consideration the potential impact on growth.” “The pace and the composition of the adjustment should strike a balance between revenue increases and expenditure restraint in the medium term. “Containing the wage bill, public service benefits, subsidies, and goods and services expenditure are some avenues to rein in public spending, while preserving growth-promoting public investment,” the Washington DC-based IMF noted.

The GCC agreement on the introduction of VAT by 2018 is a “welcome development”, and “Qatar is already taking actions to ensure its smooth and timely implementation”, it said. IMF said “deficit financing should remain supportive of private sector credit growth without jeopardising external debt sustainability. Financing the deficit mainly through external borrowing as well as asset drawdown seems appropriate, taking into consideration the risk-return tradeoff between the cost of external borrowing and the return on accumulated assets.

The mission noted that Qatari authorities “have made good progress” in public investment management. A new tender law and public finance law were recently approved. Building on these developments, further efforts to enhance monitoring of public expenditures will help improve efficiency and better management of investment spending. However, the mission urged the authorities to carefully manage liquidity pressures. Increasing transparency of T-bill auctions and improving communication with respect to the QCB’s liquidity operations would allow banks to better anticipate liquidity conditions in the interbank market and strengthen their liquidity management, it said.

Deepening domestic financial markets will promote saving and offer borrowing and investment opportunities, the IMF opined. Investment projects increase the need for diverse sources of funding with long-term maturities and reduced cost of borrowing. Qatar has continued to develop its domestic debt market, deepest in the GCC region, by issuing bonds and sukuk in September 2016, even though secondary trading is very limited. Building on Qatar’s strategic plans, the deepening of domestic financial markets should be actively pursued. “Qatar’s competitiveness indicators are the strongest in the GCC region, but there is scope for improvement compared to non-GCC peers,” IMF noted. 

The authorities have implemented a number of measures to boost diversification, including strengthening the private sector, promoting SMEs, and incentivising nationals to work in non-government jobs. They are accelerating efforts toward ensuring contract enforcement and simplifying business registration. Additional measures are needed to further strengthen the business environment, including by enhanced contract enforcement, and improved education quality, IMF said.

Dollar peg serves Qatar well: IMF
Qatar’s fixed exchange rate regime remains appropriate, IMF has said. The peg to the dollar continues to serve Qatar well, it said in a report yesterday. “Nevertheless, given that the Qatari economy is evolving towards more diversification, the pegged exchange regime should be periodically assessed over the medium term to ensure it remains the best option,” IMF noted.

source: Gulf Times