Qatar in the Global Context – Past and Future Trends


Key takeaway – In a challenging global and regional context, Qatar is rising to prominence. The global economy is characterized by weak fundamentals, below-potential growth and low inflation.

ByAlessandro Magnoli Bocchi

Key takeawayThe regional outlook is hampered by political instability and declining oil prices. By leveraging its resources and location, Qatar is trying to make the most of these circumstances. At home, it has engineered high growth through capital investments financed by energy exports. Abroad, it has become a global player via international acquisitions and with an audacious and often controversial foreign policy – ultimately geared at safeguarding its natural resources. Going forward, Qatar can cement its advantage by becoming a hub between developed and emerging markets and by intermediating south-south flows, provided the Government keeps: (i) promoting competitiveness via well-functioning economic zones; (ii) supporting SME growth; (iii) spending in infrastructure and education; (iv) making the formal labor market more flexible; (v) diversifying the economy via trade exposure and a competitive real effective exchange rate; and (vi) upgrading education and training systems.

1. Global economic outlook: weak fundamentals, below-potential growth, low inflation

Global growth is still fragile and uneven … The subprime crisis started to unfold in the summer of 2007, and burst in a money-market freeze and credit-crunch in the fall of 2008. A global recession ensued. Massive fiscal and monetary stimuli prevented a depression, by transferring debt from private to public agents via bank bailouts and central banks’ balance sheet expansion¹. Yet, these policy interventions fell short of expectations. As deleveraging from sovereign and corporate debt constrains the recovery, developed markets (DM) still suffer from high unemployment, frail consumer confidence and sluggish demand. The result – lower DM consumption – is not offset by final demand in emerging markets (EM), where most countries still rely on export-led growth. In other words, via trade and financial links, the slowdown is affecting EMs, where economic data point to structural weaknesses.

… and it is likely to remain below-potential for a few years to come. Seven years into the crisis, the world still faces below-potential growth prospects. It might take a few more years before global growth regains its rising long-term trend. Reducing debt levels is essential to achieve job-generating growth and recoup pre-2008 levels of per-capita income. The US will grow faster than a two-speed EU – where the Euro-periphery is still struggling – and Japan. As DM Central Banks will progressively decelerate liquidity supply, global financial conditions will tighten, leading to periphery-to-core flows (i.e. funds repatriation from EMs to DMs). While supported by faster DM growth, EM performance will remain challenged. Countries with fragile fiscal and current-account positions (i.e.: Brazil, India, Indonesia, South Africa and Turkey) may suffer currency depreciation and rising inflation. As DMs and EMs are still coupled, local crises can abruptly go global.

Inflation will remain in check.The ongoing economic stagnation – a combination of below-trend GDP growth and unused capacity in good and labor markets – will keep inflation subdued. Downward pressures will be reinforced by private sector deleveraging, reduced bank lending, cost-containment, productivity increases, and demographics, as older people have lower spending propensity. Euro-zone (EZ) disinflation might turn into deflation, hampering the recovery².

2. Regional context: political instability and low oil prices hamper growth.

In the Middle East and North Africa (MENA), growth is higher than global growth but remains below-potential. While most “Arab Spring” demands remain unanswered, the most affected countries – Tunisia, Egypt, and Bahrain – have recovered. Yet, the political outlook has deteriorated. Libya remains in turmoil, while Syria and Iraq are both in the middle of a civil war. Between 2011 and 2013, given political concerns, social tensions and rising global commodity prices, governments increased spending, particularly on wages. Government spending supported consumption, but fiscal and foreign exchange cushions were steadily eroded. In 2011, about $237 billion (8.6 percent of regional GDP or 22 percent of government revenue) was spent in energy and food subsidies, of which 80 percent in fuel – considered an entitlement, especially in resource-rich countries. Fiscal policy is likely to remain supportive across the region, but over the last year fiscal deficits increased (to about 8 percent of national GDP on average), debt levels rose and domestic government borrowing started crowding-out the private sector. External positions also weakened, with a drawdown of international reserves – most noticeably in Egypt – and a worsening of creditworthiness and other financial market indicators. Maintaining macroeconomic stability will be challenging. Going forward, oil-exporting countries³ will support growth in oil-importers4, via trade and financial links.

The Gulf Cooperation Council (GCC) is growing, helped by crude production and expansionary policies. Despite the sluggish global outlook and the China-led EMs’ deceleration, the six GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates –are growing the fastest in the MENA region – led by Qatar, Saudi Arabia and a diversified Oman. In most countries, economic activity is dominated by the oil and gas sector and supported by expansive policies. Between 2011 and 2013, the Iran oil-embargo lifted GCC production, especially in Saudi Arabia, and abundant reserves brought about large budget and external surpluses. Going forward, fiscal policy is likely to support growth across the region, particularly in Oman, Qatar and Saudi Arabia.

Inflation is elevated, but monetary conditions remain easy. Via subsidies, food and fuel price-hikes were absorbed by public deficits, not by consumers.  As weaker global and domestic demand eased prices, inflation decelerated in most countries – except in Jordan, Tunisia, Iraq and Saudi Arabia – but is expected to gently pick up. Central banks are importing easy monetary conditions through USD-pegs or close-tracking, and are likely to remain on hold, hence providing liquidity to the economy. In countries where government deposits are supporting the banking sector (Kuwait, Qatar, and Saudi Arabia) liquidity might be mopped up.

The global crisis irrevocably exposed the region’s shortcomings, and has increased the urgency for hard choices. The sluggish global outlook, the EZ stagnation, and China’s deceleration hamper exports, remittances and capital inflows. Prolonged policy uncertainty constrains investment and hinders tourism. Strong alliances between ruling and business families impede competition and favor rent-extraction. Monopolistic practices keep hampering job creation. As a result, the labor market is strained, with 25 percent of the youth out of work. Without bold structural changes, economic stagnation, persistent unemployment and years of violence are likely. Given population growth, 50-75 million jobsare needed over the next decade. Neither the public nor the private sectors are likely to create them.

From “stable disequilibrium” to “unstable disequilibrium”: the map of the Middle East is being re-drawn. For nearly 100 years, regional and national equilibria have been defined by the Sykes–Picot Agreement5 – the agreement signed in 1916 by England, France and Russia. These individual equilibria summed up, at the regional level, into a “stable disequilibrium”. Indeed, the Sykes–Picot Agreement reshaped the collapsed Ottoman Empire south of Turkey into “new nation-states” (Lebanon, Syria and Iraq, and to some extent the Arabian Peninsula). The frontiers were not based on religious, ethnic or tribal alliances, but mostly based on natural resources and/or the interests of the Allied Forces, mainly England and France. These “nation-states” are now dysfunctional at best, and very likely to redefine their borders. Driven by population, ethnic and sectarian dynamics, the region is moving from the “stable disequilibrium” that defined it over the past decades to an “unstable disequilibrium”. The Kurds never has better prospects to create their nation. Over the next few years, Iraq is unlikely to go back to its pre-Mosul-invasion status quo. For political transitions to be successful, economic fundamentals need to be solid. Yet, MENA countries are facing political change and pressing social demands while enduring economic strains.

3. Todays’ Qatar: rise to prominence with vision, by leveraging natural resources and location.

In this challenging context, Qatar rose to prominence. During the global financial crisis, Qatar built a booming economy at home and a “brand-name” on the global scene, making use of the large reserves it accumulated by exporting natural gas, mostly to Asia. Spending went into local infrastructure projects, trophy-assets aboard (examples are Paris Saint Germain football club in France, Harrods store in London), in financing diverse political groups in MENA and in supporting different regional players (Iran, Palestine, Israel). The 2022 World Cup and the TV channel Al Jazeera are other examples of Qatar’s global status.

Economics: high growth due to investments financed by energy exports.

High growth rates made Qatar one of the globe’s richest nations6. Despite a small land mass, Qatar is the world’s 5th largest natural gas producer (3.5% of global production) and sits on the 3rd largest natural gas reserves in the world (14% of world’s proven reserves). Over the past 10 years, GDP growth averaged 25% and in the early 2000’s reached high 30%’s levels, pushed by high natural gas prices, to eventually decline to 6% in 2013. Over the next five years, GDP growth will remain around current levels (Figure 1). The country has a small population of 2.2 million of which only 300,000 are Qataris, the rest are mostly South Asian expatriates.

Figure 1: Natural gas price and GDP growth

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Source: Qatar Statistics Authority, 2015.

Qatar’s economy is heavily dependent on energy exports. Oil and natural gas production makes up 55% of GDP (average 2010-2013). GDP is driven mainly by net exports (35% of GDP) and investments (38%) while consumption and government’s shares in GDP are relatively small (12% and 15%, respectively). Energy exports makes up 90% of total exports and Asia is the primary destination (70% of total exports). Qatar imports mainly machinery and manufactured goods (63% of total imports) from Europe and Asia (65%). Investments are mostly geared towards construction which makes up 17% of GDP (with real estate) and employs 40% of the workforce.

Figure 2: Contribution to GDP growth by expenditure (%)

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Source: Qatar Statistics Authority, 2015.

but diversification is underway. Energy export receipts mostly funded growth until 2012. The non-energy-related contribution to growth is rising, because of both a sharp fall in natural gas prices and a boost in public investment spending. Over the next five years, diversification from energy into construction is likely to continue.

Figure 3: Contribution to GDP growth (%)

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Source: Qatar Statistics Authority, 2015.

The Government runs a significant but declining budget surplus. Government revenues are about 38% of GDP, 60% of which comes from energy exports. Government expenditures are roughly 28% of GDP, and are mostly spent on development projects and public sector wages (30% and 18%, respectively). Public debt is low, at around 10%. Over the next five years, the surplus is likely to decrease as natural gas prices will remain low and ongoing development projects will bring about higher expenditures.

Figure 4: Budget balance and public debt (% GDP)

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Source: Qatar Ministry of Economy and Finance, 2015.

Qatar has a sizable current account (c/a) surplus but also high external debt. At 30% of GDP in 2013, the current account surplus has been trending down as a result of: a) lower exports due to low natural gas prices; and b) higher imports due to machinery needs for construction projects. Despite the high c/a surplus, Qatar also has a relatively high external debt, at around 83% of GDP, due to: a) non-residents’ foreign currency deposits held at Qatari banks; and b) due to real sector’s borrowing to finance development projects. Over the next five years, the c/a deficit is likely to decline to 20% of GDP and the external debt is likely to increase but to remain sustainable even under adverse scenarios – due to the central banks’ high reserves (around 41bn USD).

Figure 5: Current account balance composition (% GDP)

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Source: Qatar Central Bank, 2015.

Figure 6: External debt by borrower (% GDP)

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Source: Qatar Central Bank, 2015.

Qatar is a net capital exporter. In 2013, Qatar held 5% of GDP in foreign direct investments, 7% in portfolio investments and 13% in other investments (loans and deposits of Qataris at banks abroad).

Figure 7: Current account balance financing (% GDP)

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Source: Qatar Central Bank, 2015.

Inflation is stable around 3%. Inflation is kept low by subsidized and stable energy prices. The Qatari Dinar’s (QAD) peg to the USD also helps prices stability. Over the next five years, inflation will rise slightly due to higher demand from a young population but to remain manageable.

Figure 8: Headline and food inflation (%)

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Source: Qatar Central Bank, 2015.

Key risks are energy dependence, over-investment and political isolation. Lower natural gas prices could result in lower growth as some of the new investments might have to be scaled back. Qatar’s recent effort to diversify its economy is still financed through energy exports. The high rise towers in the capital Doha, the state-of-the-art stadiums built for the 2022 World Cup and other large scale investment projects were financed with exports receipts or debt backed by natural resources. If natural gas prices were to decline significantly for an extended period of time, some of these projects might suffer cash-scarcity. On the political side, Qatar’s persistence in pursuing controversial foreign-policies could result in political and economic isolation.

Politics: foreign policy’s main goal is to become a global player in order to safeguard natural resources

Since 2010, Qatar has actively intermediated regional conflicts …  With an audacious – and often divisive – foreign policy, Qatar has supported different factions in regional conflicts both politically (Iran, Lebanon, Yemen, Afghanistan), militarily (Syria, Palestine) and financially (Egypt). Over the years, Qatar has supported both Sunni’s (in Syria) and Shi’a (the Houthis in Yemen), a minority group (Hamas) against a majority (Israel) and a majority (Syrian Sunni opposition groups) against a minority (Syria’s Shi’a government). In 2011, Qatar has also refused to support both the Iran-backed Shi’a opposition (majority) and the ruling Sunni family (minority) in Bahrain (Table 1).

Table 1: Conflicts involving Qatar

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… as an insurance policy on its natural resources. This seemingly incoherent foreign policy has logic.  Qatar has kept the appearances of an unbiased negotiator which in turn helped it become a regional player. Qatar has also supported democratic movements abroad and backed democratically elected groups such as the Muslim Brotherhood in Egypt and Hamas in Palestine7.  In other words, international prominence is an insurance policy on its natural resources. The example of Kuwait is illustrative: in the 1980’s Kuwait was what Qatar was in late 2000’s; a rich, small nation with huge natural resources, high growth and envious neighbors in an instable region. Following a minor dispute over illegal oil drilling by Kuwait, Iraq invaded and occupied Kuwait for seven months. The occupation had a drastically negative impact on the Kuwaiti economy and the citizens’ psychology. Qatar, having possibly learned from the Kuwait example, keeps a high profile as an unbiased negotiator in MENA and as a natural ally of the “West”. This role will eventually help fend off any potential threats against its sovereignty. Much like Kuwait after the Iraqi occupation, Qatar has also invited the US in its territory, to operate the largest military base in the region.

Qatar’s new role has created frictions with other GCC countries … Qatar’s occasional support for Iran or Iran-backed Shi’a groups strained its relations with other Gulf monarchies who historically have seen Iran as a threat to their own security. In March 2014, Bahrain, the UAE and Saudi Arabia called back their ambassadors from Doha – an unprecedented event in a culture where disagreements tend to be solved behind closed doors – to protest Qatar’s non-aligned foreign policy. Unless it changes some of its policies, Qatar is likely to attract international criticism – for example for its support of extremist militants in Syria and Mali – and see rising tensions with its Gulf neighbors possibly leading to trade embargoes.

… but the relation is set to improve in the medium term.  In 2014, Qatar decided to deport to Turkey seven influential members of Egyptian Muslim Brotherhood (MB) and put restrictions on the content of a popular show on Al Jazeera, hosted by pro-MB Yusuf Qaradawi’s8. Qatar has also agreed to take part in the US-led coalition to fight against the Islamic State in Iraq. These measures indicate that in the long run the relation between Qatar and other Gulf states are likely to normalize.

4. Qatar tomorrow: in the future, Qatar can cement its advantage by becoming a hub between DMs and EMs and among EMs (south-south flows).

The “new Silk Road” is re-emerging. The Gulf countries enjoy a strategic location, and across the centuries have leveraged it to develop long-term trade and diplomatic relationships. In the past, the Gulf looked “East”: Arab dhows sailed the waters of the Indian Ocean, and Asian caravans transported textiles and spices across the desert’s trade corridors. More recently, having acquired oil wealth and an increasingly important role in the global economy, GCC countries have re-developed deeper and stronger ties with Asia – and other EMs. For example, the GCC’s relations with Asian countries – until recently confined to political and diplomatic domains – are expanding. In just ten years, trade and investment between the Middle East and Asia quadrupled, and over the next decade are expected to rise further9. Within 10 years, the GCC is expected to provide nearly one-quarter of the world’s oil supplies as well as increasing quantities of petrochemicals, metals and plastics. Where are the buyers? As much as 60 percent of the world’s population lives in Asia, where urbanization will grow by 900 million over the next two decades. The “new Silk Road” is re-emerging as an important East-East corridor and a major trading bloc.

The GCC is finding its place in a fast changing world, where Asia is the new engine of global growth. The oil-rich Gulf and an “energy-hungry” Asia are intensifying their political relations and boosting their financial ties. Heads of state are paying each other visits and building mutual trust. The linkages between the Gulf and China and India are bound to deepen every day. This rapprochement makes strategic, political, economic, and financial sense. In other words, notwithstanding the strength of its growth model, and despite the exclusivity of its relationship with the “West”, the Gulf is re-establishing its partnership with the “East”.  Over the 21st century, the Gulf’s substantial financial liquidity will be available to finance Asia’s high growth, and the region will achieve a stronger global position.

Qatar can become a center of trade for south-south collaboration, taking advantage of the global (economic) and regional (political) situation. Going forward, the region and Qatar can become the geographical hub for EM trade routes. Qatar’s foreign policy and natural gas prices will determine the strategic outlook. Assuming Qatar’s contentious foreign policy is gradually phased out and Qatar once again aligns itself with its neighbors in the Gulf and natural gas prices remain stable, Qatar will continue to be a fast-growing, rich nation that punches above its weight in global affairs.

5. Policy implications: What to do? A practical agenda

To consolidate its growth, Qatar must become a knowledge-based economy and a hub of trade and finance between Europe, Africa, the Middle East and Asia. Going forward, Qatar can take concrete, sequenced actions:

1. Promote competitiveness via well-functioning economic zones. The GCC needs to guarantee simplified business procedures and enhance in situ competition, by ensuring – for example – that local institutions treat domestic and foreign firms equally and transparently (e.g., in dispute reconciliation). A key lesson comes from Asia’s economic zones. Over the last three decades, several Asian countries – when a rapid nation-wide reform of their governance was neither possible nor credible – created “economic zones” to promote trade, spur exports and stimulate economic development. These industrial enclaves created new employment and increased export flows. Although their track record is mixed across the continent, overall they have been successful in attracting investment and fostering economic development. Overall, the experience shows that to be successful, a zone must lie in a geographically defined area, where domestic and foreign agents can find: (i) first-rate infrastructure and human capital; (ii) investment incentives and simplified procedures; (iii) domestic and international linkages; (iv)  enabling institutions, such as – for instance – an equal treatment of domestic and foreign firms, and transparent dispute reconciliation mechanisms; and (v) coordination with a comprehensive country-wide reform, in the context of an overall growth strategy. Examples are the Export Processing Zones in Singapore and Malaysia in the 1970s, and the Special Economic Zones in China, in the 1980s and 1990s. Well-performing economic zones create new wealth and bring about efficiency gains – without forcing an immediate redistribution of oligopolistic profits. Then, the investment in non-traditional activities increases, and provides demonstration effects for prospective entrants. Over time, the enhanced dynamism of the export-oriented sector is likely to diffuse beyond the original location, acting as a catalyst for reform of the economy as a whole.

2. Support SME growth. SMEs represent more than 90 percent of the GCC private sector, and employ about 50 percent of its labor force. However, they contribute less than 40 per cent of GDP because they are concentrated in less profitable, low-tech sectors. Governments should facilitate access to credit. Saudi Arabia is providing partial guarantees to SMEs. Government and large corporations’ contracts would also help SMEs grow. Greater and more stable revenues would allow for technology upgrades, financial stabilization and job creation.

3. Keep spending in infrastructure and education, push PPP. Over the years, access to infrastructure and an educated labor-force will promote the circulation of goods, people and knowledge. In the GCC, abundant revenues should finance an upgrade of both the region’s logistical network and people’s skills, while maintaining a sound fiscal policy and improving public spending efficiency. The GCC lack of infrastructure and education restrains growth, as it hurts small and medium enterprises (SMEs) and discourages entry of domestic start-ups and foreign investors. As private investment is constrained by a number of institutional factors that are difficult to address in the short run, schemes for more public-private risk sharing are also needed. To alleviate bottlenecks the government should both reduce the risk and increase the returns on private investment. In other words, it is necessary to stimulate risk-sharing among investors – for example, via public-private-partnerships (PPP) – by co-financing public works (transport and communications) and in education, by addressing under-provision of training in areas where skills are lacking. Local people’s investment in skill acquisition and organizational capacity only materializes if private returns are appropriable.

4. Make the formal labor market more flexible. The GCC should consider adopting “flexicurity”, i.e.: the ability to balance the “flexibility” needed to adapt to economic changes with “security”, in order to maintain labor protection. In Asia, as a result of past pressures from domestic employers and foreign investors, most countries’ labor regulation is sufficiently flexible and not financially onerous for employers. In the late 1990s, Korea eliminated the guarantee of lifetime employment but provided policies to compensate. In Singapore and Malaysia employment is not secure but supported by active policies, such as skills training and self-employment promotion. Over the past decade China and Korea reduced restrictions on retrenchment but introduced unemployment insurance. In China, India (e.g.:, the National Rural Employment Guarantee Scheme) and Sri Lanka, where the informal and rural economies are large, governments often used public works, self-employment programs and skills training to reduce unemployment.

5. Diversify the economy. For speedier growth, and to sustain employment generation in the long-term, the economy needs a competitive diversification. Cross country comparisons show that growth accelerations are associated with the production and export of non-traditional manufacturing and services, in other words the products “in demand” in the industrialized nations. Hence, development policies should strategically promote a structural transformation toward these “more sophisticated” economic activities, by providing production incentives to new exportables. Policies should promote the manufacturing – and export – of non-traditional manufacturing and services, to foster a market-driven expansion of non-traditional products.

  • Industrial diversification via trade exposure. To diversify the industrial base and to induce investment and entrepreneurship in the tradable-sectors, public policies should promote the manufacturing – and export – of new and more sophisticated products while pursuing a stable and competitive real effective exchange rate. The examples are there: the UAE has diversified into service provision. Saudi Arabia has developed a petrochemical industry. Still, real exchange rate overvaluation remains a challenge.
  • Pursue a stable and competitive real effective exchange rate. To foster the diversification of the industrial base, to induce investment and entrepreneurship in tradables, and to promote the production and export of non-traditional manufacturing and services, it is necessary to pursue a stable and competitive real effective exchange rate. A competitive exchange rate helps achieving rapid and sustained growth. In the past decades, fast-growing developing countries have simultaneously exhibited not-overvalued real exchange rates, high domestic savings, and current account surpluses. China is the present-day example, but in recent years this was the case also in high-performing Asian economies such as Korea, Malaysia, and Thailand. In sum, a competitive exchange rate increases demand for exports and import substitutes, and motivates entrepreneurs to produce non-traditional export commodities, expanding investment, employment, and economic grow.

6. Keep upgrading education and training systems. GCC governments must better align education outcomes with the skills demanded by the private sector. Training and placement services — already in place in several countries — need to be significantly upgraded.

[1]Most governments’ debt-to-GDP ratios rose above 90 percent, a growth-impairing level. The world’s eight main central banks – US Federal Reserve (Fed), People’s Bank of China, European Central Bank (ECB), Bank of Japan (BoJ), Bank of England (BoE), Germany’s Bundesbank, Banque de France, and Swiss National Bank – tripled their combined balance sheets from $5 to $15 trillion.

[2] Deflation would bring about higher real interest rates, higher public and private debt burdens, lower demand, lower growth, and further deflation pressures.

[3] Over the past three years, Algeria, GCC, Iraq and Libya performed better than oil-importers. Official reserves exceed $1 trillion, and foreign assets rose. On average, in GCC countries current account surpluses rose to more than 20 percent of GDP. Mergers and acquisitions (M&A) returned to the agenda, although small in volumes and deal size. While natural gas exploration and infrastructure should stimulate the GCC economy, Qatar’s rapid hydrocarbon growth is stabilizing. Social demands fostered government spending, especially public-sector salaries. Going forward, higher expenditures will support growth and improve local liquidity, particularly in Libya, where economic output is bouncing back, and Iraq, Oman, Qatar and Saudi Arabia. Yet, fiscal breakeven prices – the price of oil needed to balance the fiscal accounts at current oil-outputs and spending levels – are rising. In 2015, oil-receipts might decline in Saudi Arabia, UAE, and Kuwait, possibly depressing local consumption and asset markets. Saudi Arabia will keep playing the role of swing producer, able to balance global energy demand and supply.

[4] Egypt, Jordan, Lebanon, Syria, and Tunisia will grow below- potential, due to lower global growth, negative spillovers from the EZ stagnation and Syria’s and Iraq’s conflicts. Economic activity is deteriorating because of declining investments, meager tourist arrivals, capital outflow, stock markets underperformance, widening sovereign-spreads, credit-rating downgrades, and rising non-performing loans. Over the past year, while remittances and exports helped stabilize income, governments increased spending on wages and subsidies to cushion food and fuel price-increases. Subsequent attempts to reduce subsidies, in particular fuel, struggled because of public pressures. Unemployment rose, and tax revenues decreased as a result of automatic stabilizers and – in some countries – tax breaks. Capital expenditures were reduced to avoid deterioration in fiscal balances. Yet, fiscal and trade deficits deepened, debt service increased, and international reserves declined. Economic reforms to support growth are needed, but the political transition is slow. Except in countries where subsidies are cut, inflation should decline, driven by weak aggregate demand and lower food prices. To maintain competitiveness, looser monetary policy and greater real exchange-rate flexibility are needed.

[5] Officially known as the Asia Minor Agreement – a secret treaty between the governments of the United Kingdom and France, with the assent of Russia. The negotiation occurred between November 1915 and March 1916. The agreement was concluded on May 16, 1916 and defined spheres of influence and control in the Middle East – should the Triple Ententesucceed in defeating the Ottoman Empire during World War I.

[6] On a per-capita basis, in purchasing power parity terms according to IMF World Economic Outlook data (October 2015).

[7] On 7 September 2011, in an interview on Al Jazeera the Emir of Qatar highlighted the importance of transforming the views of radical Islamists, which “were forged under tyrannical governments”, in order for them to “embrace participatory politics if the promise of real democracy and justice (…) is fulfilled”. However, at home, Qatar rules with an iron first and does not have independent legislature or political parties. While the Emir’s promise of elections in 2013 were not fulfilled, the population keeps receiving monetary incentives to accept the status quo.

[8] Yusuf Qawadari is an Egyptian Islamic theologian. He has a popular show on Al Jazeera in which he has shown support for the Muslim Brotherhood in Egypt and criticized the UAE accusing it of being “against Islam”.

[9] Energy dominates trade. About 50 percent of China and India’s energy imports come from the GCC, as does more than one third of China’s crude oil needs. But non-energy trade is also growing fast: GCC’s non-oil exports to Asia are now 40 percent of total exports, and Saudi Arabia recently became the leading petrochemical supplier to China’s textile industry. Asian companies seek out Gulf markets for their goods. Chinese corporations are building railways in Saudi Arabia. A South Korean group won a $40 billion deal to build and operate four nuclear reactors for the UAE. Chinese warships escort commercial vessels in the Gulf of Aden and visit the Gulf’s ports.


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