Despite economic turmoil and stagnant politics in the Arab world, Qatar and its leader are defying expectations. According to the IMF, Qatar’s GDP per capita at purchasing-power parity now exceeds that of the United States and Britain, reaching an impressive $84,000. Among the 22 countries in the Arab League, Qatar is at the top of the rich-list with Kuwait following at $38,000 and Saudi Arabia trailing considerably behind at $23,000. In contrast, Congo and Zimbabwe rank at the bottom of the IMF’s table with a per capita income as low as $332 and $355 respectively.
The government of Qatar is being cautious to prevent excessive confidence, unlike its neighboring city Dubai. Despite having a population of 1.7 million with less than 300,000 Qatari citizens, Qatar is experiencing remarkable prosperity. It consistently exceeds expectations in multiple areas, as mentioned diplomatically. This favorable situation can be credited to four factors.
Qatar is renowned as the largest producer and exporter of liquefied natural gas globally, with intentions to expand production even further. The emir of Qatar, Hamad bin Khalifa al-Thani, along with his wife Sheikha Mozah, hold significant influence in the Arab world. Qatar is known for its independent foreign policy and serves as a prominent hub for diplomacy. It is worth noting that Al Jazeera operates from Qatar and holds the distinction of being the most influential television channel in the Arab world. The emir took control through a coup in 1995 at age 58 following his father’s tenure.
Since then, the ruler has consolidated his power and distributed his country’s abundant resources across the region. He has also expanded his influence to global cities like Washington and London. Recent reports indicate that this year, the Qatar Investment Authority plans to invest approximately $30 billion in foreign markets. The authority manages the country’s sovereign-wealth fund and aims to increase its current 17% ownership in Volkswagen, Europe’s largest car manufacturer. It is also considering investments in Areva, a French nuclear group. Additionally, the authority already holds a 7% stake in Barclays Bank and owns a quarter of J Sainsbury.
Britain’s third-largest supermarket chain and a portion of London’s Canary Wharf were acquired by the company this month. In addition, Harrods, London’s most renowned store, was also purchased. Equally impressive, Sheikha Mozah’s Qatar Foundation, which aims to bring top-notch education and culture to the country, has invested massive amounts of money in attracting several of the best American universities to Qatar. These include Carnegie Mellon, Cornell, Georgetown, Northwestern, and Texas A & M. Sheikha Mozah has been the driving force behind remarkable projects such as the Museum of Islamic Art, which was designed by a Chinese-American architect.
M. Pei states that every cultural project in Qatar possesses a distinctively cosmopolitan nature. The ruler of Qatar, who is a fervent sports enthusiast, has successfully attracted prominent global competitions such as football, golf, and tennis, which entice elite athletes. At present, Qatar is actively vying to host the football World Cup in 2022. Given the scorching temperatures exceeding 40? Celsius during the tournament period, the bid’s main advocate pledges to employ cutting-edge technology to infuse cool air into the stadiums and moderate the heat to the mid-20s. Despite cost concerns, the emir’s most noteworthy accomplishment lies in the realm of diplomacy.
Despite the British being slower-moving, they are still the closest ally of the emir. The American base in Qatar serves as a forward headquarters for America’s Central Command, which oversees Iraq and Afghanistan. Despite this alliance, the emir maintains a good relationship with Iran and frequently has cordial visits with President Mahmoud Ahmadinejad. Recently, they signed an unclear defense pact. Moreover, the emir has successfully made Qatar a hub for peacemaking, although he hasn’t always fully resolved ongoing conflicts.
The emir of Qatar accomplished the task of bringing Lebanon’s opposing parties together in November by forming a unity government. Speculation suggests that methods such as persuasion or financial incentives were employed, and it is rumored that the Lebanese leaders were kept confined until they reached a consensus. Additionally, the emir played a vital role in facilitating peace negotiations between Sudan’s government and rebel factions. Despite being accused of war crimes by the International Criminal Court, President Omar al-Bashir made multiple visits to Qatar at the request of the emir. The emir firmly refused all demands for Bashir’s arrest and extradition to The Hague.
Despite causing irritation among fellow Arab leaders, the emir of Qatar has made efforts to facilitate peace between the Palestinians and Israel, a country that he reportedly admires alongside Hong Kong and Singapore as successful small states. Until the Gaza war eighteen months ago, Israel had the rare privilege of a permanent trade mission in Qatar, which was closed down. The emir has expressed willingness to reopen it on the condition that Israel allows building materials to enter Gaza. However, the prime minister of Israel has currently rejected this proposition.
The emir has emphasized hosting Hamas leaders in Qatar, the Islamist movement in control of Gaza. However, there is an unsettling feeling among indigenous Qataris that they are being overwhelmed by newcomers and deprived of significant job opportunities, despite the presence of prestigious foreign educational institutions. Many of the impressive new ventures are managed by external individuals, with Qataris occasionally serving as figureheads. Additionally, the rapid pace of modernization has sparked concerns among Qataris about the erosion of their cultural identity.
The state of democracy in Qatar is a concern, as the emir openly admits to being an autocratic ruler focused on modernization. Together with other Qatari sheikhs who often hold positions of tribal leadership, the emir hosts traditional public meetings known as majlis where citizens can express their concerns and submit petitions.
However, it should be noted that the ruling family primarily governs Qatar. The prime minister, Hamad bin Jassem al-Thani, happens to be the emir’s cousin. Out of the 19 influential ministers responsible for governing the country, seven are from the al-Thanis family, which includes the governor of the central bank. Additionally, there are two ministers from the al-Attiyahs family (the emir’s mother’s family), with one member even serving as army chief of staff.
The al-Missneds, Sheikha Mozah’s clan, hold significant positions in the security service and other domains. Despite a delayed election for two-thirds of an ineffective advisory council as promised by the new constitution, there is a possibility of the emergence of an educated middle class in the future. This middle class could demand greater accountability and a fairer distribution of wealth. Within the ruling family, there might be potential for internal conflicts to arise due to jealousy. Additionally, the 1.4 million foreigners, mainly from India and Sri Lanka, who continue to receive low wages in comparison to the vast riches, may eventually advocate for better working conditions and rights.
Despite the potential depletion of oil-and-gas funds, there is no evidence to suggest that the emir’s ability to please his people with generous treatment and Qatar’s global presence will be affected. The indigenous Qataris have never experienced such prosperity before. It is important to note that a previous version of this article incorrectly stated that Ismail Haniyeh, Hamas’s prime minister, frequently visits Qatar. This error was corrected on May 28th 2010. The suggested fiscal austerity measures in Europe, while seen as a threat to economic recovery, may not be as harsh as they seem.
Investors who were skeptical about the euro-zone countries’ capacity to address their public finances are now worried about the crisis-induced excessive austerity. Greece, Spain, Portugal, and Ireland have been forced to adopt drastic measures due to volatile bond markets. In order to avoid a similar situation, Italy pledged in May to cut its budget deficit by €24 billion ($30 billion) by 2012. Even Germany’s typically dependable government unveiled on June 8th a set of initiatives that will result in savings of around €80 billion until 2014.
Angela Merkel, Germany’s chancellor, is of the opinion that Germany should act as a model for other euro zone countries when it comes to fiscal discipline. France has also expressed its commitment to reducing its deficit by terminating tax exemptions and imposing a freeze on the majority of spending programs from next year onward. However, there are now worries regarding the potential magnitude of these rapid budget cuts, which could result in a recession. Ultimately, such an outcome would undermine the intended objective of these austerity measures. Regardless of individual viewpoints on these new fiscal policies, it is evident that they will have a significant impact on the economy.
Germany’s spending cuts, although they may appear extreme, are not as severe as they initially seem. The government has plans to cut €80 billion over the course of four years, with the majority of the savings taking place in 2013 and 2014. As a result, next year’s budget will only see a reduction of €11.2 billion, which accounts for less than 0.5% of GDP. However, due to the delayed impact of previous stimulus measures, Germany’s budget deficit is expected to increase by 1.5-2% of GDP this year. In contrast, smaller countries in the Eurozone periphery are implementing more stringent measures to control their budgets.
Laurence Boone at Barclays Capital states that Greece plans to decrease its budget by 7% of GDP this year and 4% next year. Spain, Portugal, and Ireland are also implementing similar budget cuts, amounting to 2-3% of GDP in both 2010 and 2011. It should be noted that these countries only make up a small portion of the euro-zone economy. Greece alone contributes 2.6% to the output of the euro-zone, while Portugal and Ireland have even smaller contributions. When combined with Spain, these countries represent less than a fifth of the total GDP of the euro area. Therefore, the overall impact of their proposed austerity measures on the euro-zone economy will be relatively limited.
Ms Boone stated that the measures to reduce budget deficits in the euro area next year are expected to be around 1% of GDP for each country. This amount, while significant, is not considered excessive given that the European Commission projects an average budget deficit of 6.6% of GDP for the region in 2010. The impact of stricter fiscal policies on the economy is uncertain, particularly as certain temporary measures will have expired by next year. It is important to note that reducing budgets can potentially decrease GDP growth by lowering overall demand.
The basic indicators of the “Keynesian” effects indicate that a one euro decrease in public spending results in a similar reduction in GDP. However, there are situations where budget cuts can aid in growth or have less negative impact than predicted by Keynesian models. Taking decisive measures to address budget deficits can potentially decrease consumer anxieties, leading to increased savings and firm investments, as it reduces uncertainty about future tax adjustments. This anxiety is more pronounced when public debts are alarmingly high, as taxpayers anticipate potential financial struggles from deficit reduction efforts.
Research by Christiane Nickel and Isabel Vansteenkiste of the European Central Bank revealed that increasing budget deficits in high-debt countries are connected to higher levels of private savings. Furthermore, the effectiveness of budget cuts is highly dependent on the approach taken. A well-known study conducted by Alberto Alesina from Harvard University and Roberto Perotti, who is now affiliated with Milan’s Bocconi University, demonstrated that budget adjustments centered around reducing welfare payments or government wages are more prone to yield long-term benefits such as decreased public debt and accelerated GDP growth, compared to strategies involving tax hikes or cuts in public investments.
The taxes that caused the least harm were those on firms’ profits or on consumer spending. It is now harder to find examples of such “expansionary fiscal contractions”. Previously, countries that grew while reducing budget deficits often benefited from a decrease in exchange rates or took advantage of lower borrowing costs. Many wealthy nations currently have low bond yields and not all countries can devalue their currencies. However, certain types of austerity measures have a lesser impact on growth. The economic packages announced by euro-area countries seem to be well-designed.
Many countries are planning to reduce government expenses by cutting back on wages and entitlements. This includes implementing significant reductions in public-sector pay and allowances in Ireland, Spain, and Greece. Italy intends to have a three-year wage freeze and will only hire a small number of new workers to replace retiring ones, similar to Germany and Greece. Welfare payments have been greatly reduced in Ireland, and Germany plans to reduce them further starting in 2011. Greece will also cut pension costs, while Spain and Italy will make smaller reductions. It is important to note that no country has heavily relied on cuts in public investment, as this is often unsustainable.
Both Spain and Ireland have implemented significant reductions to their capital budgets, mainly focusing on decreasing current expenditures. In contrast, Portugal has heavily relied on raising taxes while also making cuts to unemployment benefits. Greece, acknowledging the severity of its fiscal difficulties, has taken a comprehensive approach by both increasing revenue and reducing spending. Notably, Greece has opted to implement specific taxes such as value-added tax (VAT) and “sin” taxes on cigarettes, alcohol, and petrol in order to tackle its deficit from various perspectives. Fortunately, Germany is not experiencing the same pressure from bond markets as Spain, Ireland, Portugal or Greece.
While officials in Germany may have delayed implementing cuts, they are starting to acknowledge the issue of weak domestic demand. However, relying on deficits for a longer period may not be the most effective solution. The reduction of welfare benefits in Germany could potentially assist by incentivizing more individuals who are not currently employed to enter the labor market, thereby driving up consumer spending. Thankfully, the government has limited tax increases. Budget cuts typically have negative implications for the economy, but Europe’s austerity measures could have been much harsher.