Qatar’s gross external debt, which is "sizeable" under the baseline, is projected to fall over the medium term, according to the International Monetary Fund (IMF).

In its recently released Article IV consultation report, the Bretton Woods institution said Qatar’s gross external debt has increased in recent years, from below 60% of GDP (gross domestic product) in 2013 to above 100% of GDP in 2018, reflecting growth of the banking sector’s external liabilities, public-sector borrowing in response to lower oil prices, and the significant fall in nominal GDP associated with reduced oil prices.

The “significant” external assets held by the Qatar Investment Authority (QIA) and the banking sector mitigates potential risks posed by gross external liabilities, it said.

"By 2024, gross external debt is projected to fall to nearly 75% of GDP," the IMF said.

The report also noted that Qatar's real effective exchange rate has depreciated broadly in line with the US dollar with some appreciation in the recent months.

"The Qatari riyal depreciated by 1% in 2017 and by 3.7% in 2018. Heavy reliance on hydrocarbon exports and an elastic supply of expatriate labour limit the impact of the exchange rate on the current account," the IMF said, adding the country's current account position strengthened in 2018 with higher hydrocarbon prices.

The current account surplus increased to 9.3% of GDP in 2018 (from 3.8% in 2017). The recovery in hydrocarbon prices allowed hydrocarbon exports to return to levels seen in 2015, according to the IMF.

Highlighting that the capital and financial account stabilised in 2018 following large outflows in 2017; it said with large financial outflows due to the diplomatic rift, the financial account was in a substantial deficit (15% of GDP) in 2017.

"With non-resident funding returning to commercial banks, a $12bn sovereign bond issuance in April, and some accumulation of assets abroad, the financial account is close to being balanced, at a deficit of 1% of GDP, in 2018," the report said.

As Qatar is a major hydrocarbon exporter, a consumption allocation rule approach is the preferred method to assess its current account position, the IMF suggested.

"This approach reflects the need for a country with non-renewable resources to target intergenerational equity. It estimates the current account balance at which the net present value (NPV) of future hydrocarbon and investment income matches the NPV of future imports net of non-hydrocarbon exports," it said.

A current account gap relative to this estimated level indicates sub-optimal saving of hydrocarbon revenues, the IMF said, adding for 2018, the current account is 4 percentage points of GDP below this estimated level and it reduces to close to 2% over the medium term.

Stressing that the estimated gap between the non-hydrocarbon primary balances derived from a consumption allocation rule framework for 2018 is about 5 percentage points of non-hydrocarbon GDP; the report said "continued fiscal consolidation will help to close the remaining fiscal gap in the medium term."

Finding that the Qatar Central Bank's (QCB) foreign exchange reserves have recovered from the impact of the diplomatic rift; IMF said reserves at the QCB recovered to $30bn, having declined to $15bn in 2017.

In 2018, foreign reserves were 20% as a proportion of broad money and covered five and a half months of imports of goods and services, it said.

"While QCB reserves only cover 44% of the fund’s reserve metric, the large stock of assets at the QIA provides an additional buffer, with assets estimated to be above $300bn," the report said.

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