Qatar’s economic expansion will remain strong in 2014 as the real GDP growth will stay around 5.9%, roughly the same as a year earlier, on higher public investment spending, the IMF said in a statement following Article IV consultations. The strong public spending, however, will be partially offset by a modest decline in hydrocarbon output. Public investments are expected to grow by an average of 6-7% over the medium term, with non-hydrocarbon growth remaining about 10%. The non-hydrocarbon sector now accounts for almost one-half of the economy, the IMF underscored.

The CPI inflation is projected to remain benign at 3-4% over the medium term. But the expected gradual retreat in commodity prices, including for food, should help cut price pressures from strong economic activity given the exchange rate peg, the IMF noted.

Negative spillovers from the global slowdown have been limited since the tight LNG market and supply disruptions among other oil producers have kept hydrocarbon prices high, the IMF said.

The IMF commended the fact that the central government budget continues to post large surpluses. Gross government debt for FY 2013/14 (ending March 2014) is projected at 33% of GDP, with the authorities issuing T-bills and T-bonds for financial market development and liquidity management purposes.

The short- and medium-term macroeconomic outlook is positive under the baseline scenario, according to the IMF. Domestic risks to Qatar’s outlook, however, are mostly related to the ongoing public investment program, the IMF said.

The investment projects are essential to boost non-hydrocarbon sector growth and facilitate economic diversification. However, the program implies the possibility of overheating in the near term, and low return and overcapacity in the medium term, the IMF warned.

To address overheating risks, the authorities are reportedly monitoring price developments and seeking to identify and address any supply bottlenecks emerging from increased investment activity.

Qatar also remains exposed to several global risks, the IMF said. In the short-term, these risks include global financial market volatility due to the exit from unconventional monetary policies in advanced economies, a persistent slowdown in emerging markets, and a renewed crisis in the Euro area.

Revenue losses from lower oil and natural gas exports would likely be the most significant spillover channel for Qatar given the high share of hydrocarbons in budget revenues and exports, according to the IMF.

The main medium-term risk to Qatar’s outlook remains the possibility of a sharp decline in oil and gas prices in light of growing unconventional oil and natural gas supplies, sluggish global growth, and rising energy efficiency.

Qatar, however, has ample policy space to deal with unexpected circumstances in the short term. Fiscal buffers and remaining natural resources are sizeable and spending is unlikely to be affected by a drop in hydrocarbon prices or market volatility in the near term, the IMF underscored.