Qatar as a Stable Economy - Cost of Living and Inflation, Unemployment and Fiscal Policies - Case Study Example

Report About Qatar (Part B&C) Name Institution Course Date Part B- Cost of Living and Inflation Introduction This section of the analysis of the macroeconomic situation of Qatar as an economic system is going to discuss the history, the current situation and the predictable future of economic phenomena namely inflation, exchange rates, interest rates both lending and deposit, consumer spending patterns and investment patterns. Statistical methods of data presentation will also be used where necessary. Inflation is the rate of change in the wholesale price index (WPI) value on a year-on-year basis (Solman, and Wride, 2009). This is due to the imbalance between the demand and supply of money or the increase in the cost of production of commodities. Before the year 2004, inflation in Qatar had been kept low. Between 2005 and 2017 the average inflation rate year-on-year was 3.3% with an all-time high of 16.6 % in June 2008 which was mainly the effect of the rise in prices of property,(WEOD, P.12) the depreciation of the US Dollar against major currencies and the increase in demand for goods and services.-9.9% in December 2009 was the lowest over the twelve year period owing to the global economic crisis(MDPS, 2012).It is however expected that due to the sound fiscal and monetary policies like the diversification of the economy practices that can be seen Qatar will be able to keep the rate of inflation at manageable levels of 1 to 3%.an inflation rate of 2 to 3% is suitable for any economy since this keeps the interest rates low (Solman, J. and Wride, A. 2009). The Qatari riyal has enjoyed good exchange rates with other major world currencies notably since the year 2001 which was the year the currency was pegged to the US dollar at a fixed rate of 1 USD= 3.64 QR. (MDPS, 2012).Since Qatar exports mainly oil and gas which are denominated in US Dollars the peg of the country’s currency to the US $ is expected to last longer. It is also notable that Qatar has vast foreign in form of Dollars at approximately 11 billion US $ excluding gold. The deposit interest rate in Qatar in 2015 was 1.6% and rose to 2.4% in 2016. The average interest rate between 1980 and 2016 stands at 4.5% with the highest rate being 6.6% in 1997 and the lowest rate being 0 in the year 2000. It expected that the deposit interest rate in Qatar will be around 2.42% in the year 2020, (WEOD). In relevance with the interest rate it would also be important to note that the value of loans increased to 14% this year and a forecast of an increase in the near future can be relied upon. Consumer spending patterns for Qataris have been developed in the recent past using surveys conducted by the Ministry of Development Planning and Statistics. A survey “social statistics 2003-2012” revealed t6hat the average monthly spending increased by 82.2%with housing constituting 30% from 17% of the expenditure in 2001. Transport takes up 14% while household goods and other services take about 14% of the total expenditure currently. There has been a significant increase in the expenditure on recreation, culture and energy from 2% in 2001 to 5% in 2007 (Solman, J. and Wride, A. 98). Non-Qataris make up a good portion of the population in Qatar hence their contribution to the macro-economic change cannot be neglected. The increase in the average monthly expenditure for this group increased by 46% with housing, water and energy taking up a higher portion of the expenditure. The increase in the consumer spending in Qatar is mainly due to the rising income that has ensured the improvement of the living standards of people. Factually: households that spend over 50000 QR monthly increased from 6% in 2001 to 22% in 2007 and there has been a steady increase in the same over the years. The annual consumer expenditure is projected to be approximately 188159million QAR in 2020(World Bank 2016). Qatar’s investment patterns in the most recent past specifically 2011 to now has been shifting focus from the hydrocarbon industry with the aim of achieving a stable and diversified economy, one which will not fall upon depletion of the hydrocarbon deposits in the country (QNDS, 2011-2016) in line with the country’s vision 2030. This has seen the growth of Qatar investment authority and Qatar sports investment fund which are sovereign investors, other investors are individuals and organizations notably members of the royal family. With the anticipated hosting of the 2022 world cup, Qatar is also investing in infrastructure and sports in its own soil in addition to the ties they enjoy with France and Britain. Sovereign wealth funds in Qatar are currently investing banking, real estate, hospitality, construction and materials and sports. Part C- Unemployment and fiscal policies Introduction This section will discuss and analyze the employability and unemployment rates in relation to government policies that have been put in place and the future of the employment industry of Qatar. This section will also discuss the monetary and fiscal policies that the government of Qatar has taken in the recent past and their outcomes and project the future of these policies. Graphs and charts will be used to present the data where necessary and possible. Employability in Qatar is very high, numbers have shown a steady increase in the number of employed people (MDPS). The rate of increase in population and the increase in the employed population have increased concurrently in the past decade keeping the unemployment rate at 3.9 as the highest and 0.2 as the current rate and an all-time lowest (Solman, J. and Wride, A. 2009). With a population of 2.5 million people 2 million people are employed. Comparing this to the situation in other economies, it can be easily concluded that the rate of unemployment in Qatar is low. The future of the labor industry in Qatar can then be predicted as an economy that will be importing labor to drive its economy. Fiscal policies are ways in which a government adjusts taxation rates and government expenditure to for purposes of influencing and monitoring its economy. Qatar’s fiscal policies have in the past increased with the rise in oil prices in the world market with 70% of fiscal revenues coming from oil and gas. Before 2010 it can be noted that with the current diversification of the economy, the current fiscal revenue gets 50% from the oil and gas industry. Qatar is a big trading economy with imports and exports substituting 90% of the Gross domestic Product (World Bank Databank). Qatar’s government policies have been seen to inhibit foreign investment in many sectors of the economy which have led to distortion of the economy by state-owned businesses. However the banking sector that has remained stable in the past has received significant increase in foreign investment due to amendments on the law. These have put trade freedom at 83.1 percent and steadily increasing, investment freedom at 55% with anticipated slow increase and financial freedom remaining stable at 60 % (Solman, and Wride, 2009). Monetary policy is a macroeconomic practice by a central bank of laying down policies to ensure monetary management aimed at making a country achieve goals like inflation, liquidity, growth and consumption. Monetary growth has been stable in the past for Qatar except in 2015 when there was slower growth owing to the falling of the foreign sector currency deposit (Solman, and Wride, 2009). There are expectations of the monetary growth to stabilize and even increase in the near future. It is also expected that the economy will continue growing steadily because of the vast presence of Liquefied Natural Gas that is enough to last 54 years with the current rate of exploitation (MDPS). With an expected increase in the oil prices this year and the diversification of the economy. Public debt is expected to reduce in 2018 due to a predicted swing in the emirate’s fiscal balance to surplus (MDPS). Conclusion The above discussions of macroeconomic phenomena have shown Qatar as a stable economy since the GDP has remained constant despite the shifting of the economy from one highly dependent on the hydrocarbon industry. The inflation rates being constant and a projection of the next five years shows stability, there has been an increase in income and expenditure which have led to increase in living standards with a projection of steady increase. With low unemployment rates in Qatar unemployment is mainly a youth factor, (Saudi Gazette, 2012b). Since 2008, significant steps have been taken towards tackling the issue of youth unemployment. In2008 100million US dollars were invested in the research and participation to come up with ways of reducing youth unemployment in Qatar. There have been a number of education reforms to ensure the curriculum in schools is in line with industry requirements to curb the employability of the youth. The World Bank has also funded educational programmes that seek to improve the entrepreneurial ability of the youth and finally funding by the government, organizations and the World Bank for Qatari innovators has been witnessed. All these have been efforts to reduce unemployment among the youth. References Ministry of Development Planning and Statistics. Measuring the standard of living in Qatar, Household Expenditure and income survey 2012-2013, 2015. Qatar National Development Strategy, 2011-2016. Sloman, J. and Wride, A. (2009) Economics 7th edition FT Prentice Hall The Saudi Gazette, 2012 World Economic Outlook Database Worldbank Databank Read More