03 April 2016
Doha - With Qatar announcing to plug its deficit gap through the issuance of debt, the country's debt market is expected to deepen through to 2019. Qatar is comfortable in managing debt, as it has the experience of borrowing heavily to build up the LNG industry, Samba's latest 'Economic Monitor' said.

Recalling the Ministry of Finance's announcement that the budget deficit would be funded by debt issuance, Samba  noted that "any deficits would be funded entirely through debt issuance rather than the drawing down of reserves. It is the authorities' view that the QIA (Qatar Investment Authority) reserves are to ensure future generations' economic well-being and aren't intended to be used as a stabilisation tool. 

"Although of course the reserves are there if needs be, the Government seem fairly staunch in their view that QIA should be left to do its own thing". Though the Ministry  announced that the projected deficits would be funded entirely through debt issuance, the change in Qatar's debt to GDP ratio should be relatively small compared to others in the GCC.

The Samba report noted that liquidity in Qatar's banking sector has tightened further on the back of a fall in hydrocarbon-related public sector deposits (9 percent year on year in January).  The loan to deposit ratio stood at 122 percent in January, the highest it has been since December 2012. In part, the recent tightening reflects the October and November auction of government bonds and Sukuks of varying maturities.

Qatar remains rated AA, AA2, AA by S&P, Moody's and Fitch respectively. In fact, S&P has recently reaffirmed Qatar's rating whilst downgrading other notable hydrocarbon exporters including Saudi, Bahrain, Oman and Kazakhstan whilst Russia was placed on negative watch. 

S&P's reasons for exempting Qatar from a downgrade included the relative political stability of the country, the fact that growth should be maintained thanks to high capital spending; its sizable financial assets and, perhaps most importantly, the predictability of its income stream after Qatar signed new long-term LNG export contracts with India and Pakistan.

The report said non-hydrocarbon sector continues to drive Qatar's growth. Growth should come in at around 4 percent for 2015, a rate Samba expects will be maintained through to 2017 as the non-oil economy continues to drive overall growth with a robust level of government capital spending and still significant pipeline of project activity.

Samba's 2016 global growth forecast was already relatively bearish at 2.9 percent, but it has nudged this down to 2.8 percent on new projections for the US (2 percent), the Eurozone (1.4 percent) and Japan (0.5 percent). EM growth will continue to be weak, and recessions are likely to linger in Brazil and Russia.

Worries over weakening growth in advanced economies and continuing strains in Emerging Markets, (EMs) especially China, have raised recession fears and prompted turmoil in financial and commodity markets in the first quarter. These concerns have been heightened by the impression that policy makers have run out of options to revive economic activity. However, while growth is clearly still fragile and policy options increasingly unconventional, available data continue to point to muted global growth.

© The Peninsula 2016