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Qatar's economy grows, cheap gas is challenge

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Staff writer ▼ | April 3, 2015
Qatar's economy has grown at 6% a year for the last three years and inflation is below 3%, but the country can experience difficulties as early as 2016.
IMF   International Monetary Fund
According to a review by the International Monetary Fund (IMF), growth is partly driven by the non-oil sector, which has progressed at a "double-digit" rate in the last three years. Still, over the medium term, liquefied natural gas (LNG), the main source of revenue for the country, can become the main challenge facing the country's accounts, due to the fact that its price has dropped, just like oil prices.

The IMF notes that Qatar is responsible for one third of global LNG trade. However, the Fund says, the plummeting price of oil and its products should cause some of the country's economic indicators to worsen next year.

According to the report, 90% of Qatar's budget revenue is related to the hydrocarbons sector, and "crucially", LNG price is tied to oil price. Among the economic indicators that could worsen, the Fund names the fiscal and external balances and the budget deficit.

"Growth is expected to slow over the medium term as public investment growth tapers and the private sector offsets the decline only partially. The main risks to the macroeconomic outlook are the possibility of lower-than-expected oil and natural gas prices and the possible side effects of public investments in the form over short-term overheating and medium-term excess capacity," the review reads.

The IMF also remarks that real estate prices are going up fast, especially land prices, and recommends measures to deter speculators. The Fund's technicians believe Qatar has worked hard to diversify its infrastructure over the last few years and is getting ready to host the 2020 FIFA World Cup, and these actions help fuel the economy.

The Fund expects the Gross Domestic Product (GDP) to be up 7.1% this year, fuelled by government investment and a new natural gas field set to go online. In 2016, the GDP is expected to be up 6.4%.

The Fund acknowledges that the banking system is strong, but adds a few admonitions, including improving educational curricula, the business environment, contract enforcement and diversifying the economy.