By Pratap John
Chief Business Reporter
Private sector credit growth in the country is starting to accelerate, driven by a strong demand for funds from the construction, real estate and services sectors, says Dun & Bradstreet in a report.
Quoting Qatar Central Bank, Dun & Bradstreet said the country’s private sector credit growth grew by 16% year-on-year in June, with contracting loans rising by 34%.
Claims on the public sector grew by a much slower 6%, reflecting recent government directives that state-owned entities must seek approval from the Ministry of Finance before taking out loans, said Dun & Bradstreet in its “Qatar economy insight”.
The reason for this, according to Dun & Bradstreet is two-fold: to reduce government debt exposure, but also to prevent the state from “crowding out” private sector credit.
As a result of the much faster pace of private sector credit growth, it now makes up 57% of the total loan book of local banks.
To meet the growing need for capital, the QCB also wants to encourage additional means of borrowing among Qatari entities.
To this end, it has been trying to establish a “strong yield curve” in the local bond market in order to create a benchmark for local companies.
In August, the government started selling seven-year bonds, alongside the five-year and three-year quarterly offerings that it has been issuing since March 2013. The longer-term bonds allow the government to build a longer yield curve in the riyal-denominated bond market, which will support the development of a viable local debt market for local companies, creating a deeper reservoir of funds to support project development.
The government has also been pouring more of its own money into project development; with fiscal indicators for the 2013-14 budget showing an overspend against budget of 10%.
The budget itself showed an 18% increase against the previous year’s figure. Much of the increase in spending came on capital items, with project spending rising by 33% over the year, against a rise of just 2% in the previous year. Conversely, growth in current spending slowed dramatically, from 24% in the 2012-13 fiscal year to just 6% last year.
Inevitably, this higher level of liquidity has impacted consumer prices. Average annual inflation reached 3.1% in 2013, up from 1.9% in the previous year, although by June 2014 the 12-month average had slowed slightly to 2.8%, helped by moderating food prices.
However, the driver of price growth, house prices (which make up almost a third of the consumer price index), is likely to continue to exert upward pressure on overall prices.
Qatar Central Bank’s real estate price index jumped 29% y-o-y in June, driven by strong population growth.
