The International Monetary Fund (IMF) has asked Qatar to watch its \"large public spending programme\" as its gross domestic product (GDP) grew at 19 per cent in 2011, up from 17 per cent in 2010. \"The economic outlook for 2012 and beyond looks favorable, despite increased external risks. The main downside risks are lower hydrocarbon prices and potential disruption in transportation of liquefied natural gas (LNG) due to increased geopolitical tensions,\" IMF said in its annual assessment of Qatari economy on Tuesday. \"Real GDP growth rate is projected to moderate to 6 per cent in 2012, with real hydrocarbon GDP slowing down to 3 per cent, as LNG production remains constant due to the self-imposed moratorium on new hydrocarbon projects. Large government investment for infrastructure would sustain growth in the nonhydrocarbon sector between 9 and 10 percent beyond 2012.\" Qatar has weathered the global crisis with high growth, and large external current account and fiscal surpluses, said the global financial watchdog. \"Government intervention in the banking system has ensured financial stability, and it is using its fiscal space to implement a large public spending program to maintain strong growth in the nonhydrocarbon sector,\" it said. Article continues below The nonhydrocarbon sector is expected to grow by 9 per cent, driven by manufacturing, financial services, and trade and hotels. Consumer Price Index (CPI) inflation excluding rent increased to 5.8 per cent in October 2011. Following an average deflation of around 2.5 per cent in 2010, average CPI inflation is expected to average around 2 per cent in 2011 (end-year 2.5 percent)—with negative rental inflation being more than offset by a general increase in all the other components of the inflation basket. The banking sector remains profitable and strong with a capital adequacy ratio of 22.3 per cent, average return on assets of 2.7 per cent, and non-performing loans ratio of 2.3 per cent at end-June 2011. Average CPI inflation is projected at 4 per cent to 5 perc ent over the medium term, as rents stabilize due to a gradual decline in excess capacity in real estate, and as the implementation of large investment projects lead to some overheating pressures. The fiscal and external accounts are projected to remain in surplus throughout the medium term, as oil prices are expected to remain high. \"The expansionary fiscal stance in 2011/12 thus warrants careful monitoring of aggregate demand to ward off risks of inflation. Fiscal policy must continue to maintain a careful balance between spending on infrastructure to sustain non-inflationary growth, and saving and investing hydrocarbon surpluses abroad to generate sufficient income to finance future budgets,\" IMF said in its assessment. Developing a more formal and transparent macroprudential policy framework to enable a swift response when needed would help achieve orderly credit growth without generating overheating. The main challenges for monetary policy will be to support credit growth without fuelling inflationary pressures or short-term capital inflows. Reducing Qatar’s vulnerability to hydrocarbon price fluctuations will require, in addition to fiscal management, diversification into other sectors of the economy and reinforcing competitiveness. Opportunities for efficiency gains and reducing distortions in petrol, energy, and water use exist by reducing, among others, direct and indirect subsidies. It is also opportune to consider options for deeper pension reforms, IMF said.