IMF update

 

Qatar Charting a New Course for Qatar’s Economic Diversification After the World Cup (Credit: hasan zaidi/iStock via Getty Images) Qatar continues to enjoy economic gains after hosting the 2022 FIFA World Cup, which boosted its global profile. Visitor arrivals in 2023 were nearly twice pre-pandemic levels, and tourism this year reached new heights. Hosting the World Cup has accelerated Qatar’s economic diversification into non-hydrocarbon sectors as its massive public infrastructure investment program since 2011 built out everything from ports and roads to metro and airports. The cost of stadiums represented only about 5 percent of the total infrastructure investment, by some estimates. IMF analysis shows that the public investment program helped drive most of Qatar’s economic diversification over the past decade, contributing on average 5–6 percentage points annually to non-hydrocarbon real GDP growth. Going forward, the newly created infrastructure can be leveraged to generate new jobs, businesses, and opportunities in sectors beyond the oil and gas industries for further economic growth. Structural reforms have also accelerated. Qatar has enhanced labor protection for foreign workers, who account for about 95 percent of the labor force. It was the first Gulf Cooperation Council country to abolish Kafala, a sponsorship system for foreign workers that limits their mobility. The government also implemented initiatives to improve business efficiency and attract foreign direct investment. Furthermore, Qatar has advanced digitalization efforts significantly, ranking 16th among 198 countries in the World Bank’s GovTech Maturity Index. Looking ahead, Qatar’s key challenge remains transitioning from public sector-led growth to a more diversified, private sector-driven model, as envisioned by Qatar’s National Vision 2030. Achieving this transformation requires bold reforms to boost productivity, foster a more conducive business environment, and leverage progress in digitalization and climate actions, according to the IMF’s latest annual economic review. Qatar’s Third National Development Strategy (2024-30), launched in January 2024, sets the strategic priorities in line with IMF advice. IMF analysis suggests that reforms to attract more skilled foreign workers, ease access to financing for small and medium enterprises, and encourage competition and trade could generate the most significant growth gains. Simulations suggest that a comprehensive package of labor market and business environment reforms could boost annual non-hydrocarbon growth by close to 3 percentage points over the medium term. To maximize gains, the authorities should ensure that complementary reforms are properly sequenced and consistent with the country’s capacity for implementation. Continuing progress with digitalization and climate actions can generate new sources of growth and enhance sustainability. **** Ran Bi is a Deputy Division Chief and Ken Miyajima is a Senior Economist. Both are in the IMF’s Middle East and Central Asia Department. RELATED LINKS Staff Report Qatar and the IMF From HydroCarbon to Hightech: Mapping the Economic Transformation of Qatar

(Credit: Wengen Ling) Economic growth is often seen as the core ingredient to social development, but it’s a relatively new idea. So what did pre-growth society look like and how much growth can modern society sustain? In his latest book, Daniel Susskind argues that economic policy should consider the costs of growth more carefully and realign the drivers to better fit with the challenges of our time. Susskind is a research professor at King's College London and a senior research associate at the Institute for Ethics in AI at Oxford University. In this podcast, he says growth doesn’t come from the tangible world of things but from the intangible world of ideas.  Read the book review in Finance and Development     Listen to the podcast on: IMF.org | Apple Podcasts | Spotify | Soundcloud | YouTube   Read the transcript     Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@IMF.org.   Bruce Edwards Producer, IMF Podcasts

Dear MARIA, We just published a new blog—please find the full text below.  Financial Stability Implications of Emerging Market Currency Developments (Credit: Viktor-Gladkov/iStock by Getty Images) By Tobias Adrian, Fabio Natalucci, and Jason Wu In our blog at the beginning of this year, we flagged that emerging markets were navigating high global interest rate volatility. We also noted that while emerging markets have thus far remained resilient, rising uncertainty could lead to challenging times ahead. A global soft landing remains the base case, as the July World Economic Outlook update showed. The forecast for economic growth in emerging markets has changed little, with projections edging up to 4.3 percent for both this year and next. Inflation in most major emerging markets is forecast to ease further and reach target ranges, allowing monetary policy to ease in the foreseeable future. And yet, emerging market currencies have declined by about 4 percent year-to-date, on net, against the US dollar, even after partially recovering in recent weeks. Latin American currencies have dropped 5 percent, while currencies in Asian emerging markets are lower by 4 percent. Central and Eastern European and African currencies saw milder depreciations. It’s important to assess whether further declines could have adverse consequences for financial stability. A key determinant of exchange rates is the difference in interest rates between a given country and the United States—the benchmark in global capital markets. At the beginning of this year, investors expected the Federal Reserve to cut interest rates significantly, which would widen or at least maintain the interest differentials with emerging markets. With the US economy proving stronger than previously anticipated and inflation not yet reaching the Fed’s target, expectations for US interest rate cuts dissipated over the course of the year, and the US dollar appreciated. As a result, major emerging markets’ interest rate differentials vis-à-vis the US narrowed. Countries with the most pronounced narrowing—notably several Latin American countries that reduced policy rates this year in response to slower inflation—or those that have the lowest levels of interest rate differentials, including some Asian emerging markets, experienced the largest exchange rate depreciations against the dollar. Other country-specific factors might also be at play, such as fiscal concerns or political developments. Several emerging central banks have slowed or paused rate hike cycles, or conducted foreign exchange interventions, to manage currency volatility. The past six months underscore the importance of the interest rate differential as a fundamental driver of exchange rates. Currency depreciations can occur even when the economic outlook for a country is solid, because it is the relative level of interest rates that matters most. These adjustments also demonstrate that most emerging market central banks remain committed to policy frameworks that target domestic inflation and economic conditions, rather than exchange rates per se. Faithful adoption of inflation targets may in fact lessen the pass-through of currency depreciations to domestic conditions, as shown by the recent work by IMF’s Regional Economic Outlook team. That said, exchange rate volatility continues to be a part of the policy deliberations. Several major emerging market central banks have recently discussed exchange rate volatility and global uncertainty as part of their decision making.  Currencies and financial stability Orderly depreciation of a currency toward levels broadly in line with economic fundamentals—including interest rate differentials—can be constructive for an economy. More troubling are cases where there are abrupt selloffs, which can trigger financial instability. Sudden foreign capital outflows can severely affect asset prices and open up funding gaps. Financial institutions could see foreign exchange mismatches intensify and may be unable to rollover foreign currency (particularly US dollar) funding at reasonable costs. Investor confidence in emerging economy financial markets could quickly falter. Thankfully, that hasn’t been the case this year. Yet with an uncertain global backdrop, and markets increasingly sensitive to economic data releases, central bank communications, and political uncertainty in some major economies, outflow pressures could spike suddenly. This could leave emerging market policymakers with the potentially difficult trade-off between stabilizing domestic conditions and fending-off external pressures. Policy responses to maintain financial stability Should pressures continue to build, additional policy tools can be useful—in line with the IMF’s Integrated Policy Framework. For instance, in cases where a sharp depreciation poses material financial stability risks owing to balance-sheet mismatches, or threatens to de-anchor inflation expectations, foreign exchange intervention may be helpful in mitigating adverse impacts. Such interventions can be especially useful when markets are shallow or outflows cause market liquidity to seize up. If the situation deteriorates to imminent crisis, capital flow management measures might be needed as part of a broader policy package to alleviate outflow pressures. However, these measures can’t substitute for fundamental macroeconomic adjustments and should be only part of broader plans to address any underlying imbalances. For example, policymakers in several countries have communicated that recent interventions were the exception, not the rule. Macroprudential policies—for example those targeting asset and home prices, as well as those reducing FX mismatches on borrower balance sheets—could be potent complements. And stress tests aimed at identifying systemic troubles in the financial sector arising from external pressures could help mitigate risks before they materialize. Most importantly, prudent policymaking should not only be about the baseline, but also about risk management. Vigilance and planning for adverse scenarios should be the central tenet of financial policies. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!