By Satish Kanady
DOHA: Qatar needs to strengthen its fiscal institutions, particularly with an integrated public investment management process, for improving its public investment efficiency. This integrated management process system is very essential for the country to reduce costs and contain the risk of significant cost escalation associated with public infrastructure projects in Qatar, IMF noted in its Qatar Country Report yesterday.
Public infrastructure projects in Qatar often suffered delays and rising costs in the past. In particular, high levels of public investment have been usually associated with significant rise in construction prices in Qatar. Considering Qatar’s high concentration of large infrastructure projects in the coming years, the authorities should carefully manage the investment pipeline through an integrated investment management process, the Fund noted in its report released after holding discussions with the country’s key policy leaders.
After assessing efficiency of public investment, trends in public capital spending, the Fund said, while comparing to its GCC peers, the efficiency of Qatar’s public investment appears to be lagging behind resource-rich advanced economies.
Commenting on the metro rail project, one of the big-ticket projects of Qatar, the report said the construction costs are subject to the risk of cost overruns, though appears relatively low at the moment.
“The per-kilometre cost estimates of metro construction projects based on contract values show that Qatar compares favourably to its neighbouring countries. Nevertheless, the substantial cross country variation in these cost estimates, even within the GCC, could reflect large uncertainty in the final costs of the metro projects and suggest the risk of substantial cost escalation. The experience of Dubai provides a cautionary tale, with final costs exceeding the contracted spending by 75 percent,” IMF said.
The Fund observed that Metro projects seem more expensive in Qatar when adjusting for its labour costs, although the final costs estimates in Qatar still appear reasonable compared to selected global benchmarks. The final costs of metro projects are estimated using the assumption of a 65 percent cost over-run as per international construction price index. The final cost estimate is slightly higher than the average cost in the Asia and Latin American region, but is lower than the cost in the US and Europe. Once the low-wage costs are taken into account, Qatar still compares favourably to its Mena peers, although it appears more expensive than the US. However, an important qualifier to the comparison with the US is that this calculation does not control for the different costs of raw materials that Qatar must import from foreign countries at an additional expense.
The construction costs calculated on large-scale road projects appear expensive in Qatar, compared with other countries in the region. The per kilometre per lane cost estimates of road construction projects in Qatar range from $0.7m to $7.4m. In contrast, the cost estimate per kilometre per lane is around $1.5m in Oman, and less than $1m for projects in other countries in the region.
The high construction costs could reflect a number of factors, including land values, quality and technical complexities, which are not captured in these estimates due to data limitations.
DOHA: Qatar’s gas-to-liquids Barzan plant could help push the country’s growth above 7 percent by 2015. Public investments are expected to keep growth at 6-7 percent over the medium term, with non-hydrocarbon growth remaining about 10 percent, IMF said in its Qatar Country Report yesterday.
On the country’s macro economic outlook and risks, it said Qatar’s GDP growth could stay around 6 percent in 2014 as the pickup in public investments is offset by a modest decline in hydrocarbon output.
Inflation is projected to stay at 3 to 4 percent — a modest increase from recent years due to accelerating capital expenditures. The anticipated gradual decline in commodity prices, including for food, should reduce price pressures from strong economic activity in the context of the exchange rate peg. Fiscal and external balances are projected to taper down significantly over time due to flat LNG production, falling crude oil output from mature fields, expected lower hydrocarbon prices, and growing nominal expenditures. The public debt ratio is expected to fall, but the headline budget balance could — according to IMF staff projections — turn into deficit by 2019, while the current account surplus could drop to 6.5 percent of GDP.
In the short-term, a global slowdown or financial turbulence could yet have adverse repercussions for Qatar. Generally, revenue losses from lower oil and natural gas exports would likely be the most significant spillover channel for Qatar. However, the financial channel could become important given Qatari banks’ remaining wholesale funding exposures abroad, their Mena linkages, and external financing needs for the infrastructure programme.The Peninsula