Doha to cut spending in bid to reduce soaring inflation

16 May 2008
Government budgets to be reviewed as inflation reaches record high.

Qatar has outlined a domestic plan that includes a formal review of government spending to bring spiralling double-digit inflation back into line with its GCC peers.

Ibrahim Ibrahim, economic adviser to Emir Sheikh Hamad bin Khalifa al-Thani’s, tells MEED a review has been initiated in an effort to cut government spending and tame inflation. “We are restructuring our government to make sure there is no inefficiency or weakness,” Ibrahim says. “We have to define priorities. The government has to look at health, education, infrastructure and every-thing else will come later.”

He says the temptation for a young, prosperous country like Qatar is to try to conquer every sector. But with inflation at a record high, this has had to be tempered with a focus on the essentials. “We are a developing country and we need to do many things,” says Ibrahim. “But the main thing is to convince [the government] you cannot do everything. If you do everything, it will be transferred into inefficiency and then, ultimately, inflation.”

Qatar’s Finance Minister Yousef Hussein Kamal estimates about 70 per cent of the country’s inflation rate is now driven by domestic factors that can ultimately be tweaked to ensure the rate of growth is slowed. That marks a departure from last year, when the minister blamed imported price rises for exacerbating the country’s inflation woes.

Kamal tells MEED that in addition to the government passing a law last year to exempt imports of gravel, steel and cement from customs duties, the state’s two main utilities, the Public Works Authority (Ashghal) and Qatar General Electricity & Water Corporation (Kahramaa) have successfully introduced price escalation clauses for their civils works projects.

The government has also outlined plans for 6,000 new houses for low-income workers and new areas for storage and industrial projects to ease bottlenecks at existing sites.

Kamal confirms that inflation hit a peak of 15 per cent earlier this year but says the rate has now slowed back to the 2007 average of 13.7 per cent as a result of government measures.

“My government is trying to keep inflation at not more than it is today,” says Kamal. “I think inflation is now 13.7 per cent from the peak of 15 per cent.”

He adds that the trend for Qatar’s inflation is positive. “If we compare inflation in Qatar with all the GCC, I think now we are at the same level,” he says. “Saudi Arabia and Kuwait, of course, have less inflation than we have but now I think we are almost on the same level because - we grew more than the others earlier.”

The minister’s comments come against the backdrop of Doha’s struggle to meet the entry criteria for the GCC single currency by 2010. Under current guidelines, a country’s inflation rate must be no more than 2 per cent above the GCC average, requiring Qatar to scale back its level of price increases to a single-digit figure.

Qatar also faces an acute housing shortage and high rents. It continues to be a huge driver of the overall consumer price inflation index in Qatar, with local tenants struggling to keep pace with big hikes in annual rents.

Kamal says the new rent law introduced in February, which forbids landlords from increasing rents for two years, will help to fight the problem.

Doha’s Planning Council reported a 27.1 per cent rise in housing costs for the year to the end of June 2007, after 26 per cent hikes in 2005 and 2006.

In fact, Qatar’s inflation rate is far higher than the GCC average, which the International Monetary fund predicts will be 7 pre cent this year.

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