‘Qatar external debt may drop to 75% of GDP in 2014 on strong growth’

By Pratap John/Chief Business Reporter

With GDP growth beginning to outstrip external liabilities, Qatar’s external debt may fall to 75% of the country’s gross domestic product this year, a new report has shown.

Samba Financial Group projects Qatar’s external debt to GDP ratio to maintain its declining trend, coming in at around 75% of the GDP in 2014, having fallen from 82% in 2013 as GDP growth begins to outstrip external liabilities.

Qatar has “accumulated significant external buffers” from its consistent current account surpluses over many years, the report said.

Samba expects a current account surplus of 30% of the GDP for 2013, slightly down on the 2012 figure of 32.4.

“We expect this trend of narrowing current account surpluses to continue as oil prices eventually begin to soften, and imports (mainly related to construction) increase. Nevertheless, the Qatar Central Bank holds ample forex reserves, totalling $41.7bn (nearly eight months imports of goods and services),” Samba said.

The assets of the Qatar Investment Authority make the country a net creditor, though the exact value of assets under the fund’s control is unknown, it said.

The International Monetary Fund estimates that revenue accruing to the fund stands at over $20bn a year since 2010 and will remain around this figure through to 2019.

According to Samba, Qatar’s banking sector appeared well placed to take advantage of the anticipated call on it for project financing.

NPLs (non-performing loans) remain below 2% and liquid assets represent 50% of total assets. Foreign funding of commercial banks has been reduced from 30% of liabilities in 2012 to 23% at present, and the maturity profile has improved with short-term loans gradually replacing longer-term facilities. Rising public sector deposits have helped the domestic loan to deposit ratio ease to 1, from 1.2 in March 2013. All of this puts banks in a strong position to take advantage of the swathe of funding opportunities the infrastructure projects should produce. This can already be seen in the rise in credit growth to contractors (47.3% year on year in May) albeit from a small base. “We expect total domestic credit growth to increase to around 15-20% over the next two years,” Samba said.

One of the perennial risks for the banking system in Qatar and the region in general is the exposure to large, single-name obligors, it said.

This, Samba noted, was a consequence of the narrow (but widening) base of the economy, with a strong concentration in risk from the real estate (16% of total domestic credit) and oil and gas sectors.

Though the situation does not warrant policy action, the IMF has advised authorities to further develop their early warning system in order to monitor systemic risks, which straddle all sectors of the economy, Samba said.