04 April 2011
KUWAIT: After avoiding falling into a recession during 2008-2009, Qatar is expected to continue posting double digit growth in 2010 and 2011 Nominal GDP of 29 per cent and 25 per cent, respectively, according to IMF estimates. The country is expected to post the highest growth rate in the GCC region supported by the 5 year QAR 100 bn ($27.5bn) government stimulus plan which will maintain high levels of capital spending on education, health and transport.
The government is placing special emphasis on developing the non-oil and gas sectors of the economy in an effort to diversify sources of income away from the exclusive dependence on hydrocarbons. However, the boost in domestic LNG production through the initiation and development of two major LNG projects with a production capacity of 55mn tons per annum with foreign partners for the purpose of utilizing the North Field gas will stimulate growth. In Q3-10, Qatar's GDP was estimated at QAR 111.25bn ($30.56b
n) compared to QAR 91.85 ($25.23bn) in Q3-09, showing an increase of 21.1 per cent on the back of increased activity in the real estate, insurance, financial services, manufacturing and construction sectors.
Economic fundamentals for Qatar seem promising placing it at the highest ranking among its GCC peers in terms of growth levels in 2010-2011. Looking forward, solid hydrocarbon prices coupled with the robust growth in the credit market will help sustain positive growth levels and provide momentum to the economy in the medium term.
Growth prospects in Qatar remain strong in the medium and long-term. Following a growth of 8.6 per cent in 2009, real GDP is expected to grow by 16 per cent in 2010, the fastest growing economy in the GCC region, owing to an expected growth of 25 per cent in the hydrocarbon sector and an 11.5 per cent growth in the non-hydrocarbon sector, underpinned by the government's continuous massive capital investment which exceeded the QAR 110bn ($30bn) mark over the period 2004-2009. The cornerstone of Qatar's stra
tegy is the government's commitment to diversify the economy by building related industries around the full LNG value-chain and linking upstream, midstream and downstream components. Non-hydrocarbon real GDP is expected to record double digit growth in 2011, fuelled by the significant growth in services and a pick-up in manufacturing and construction activities.
Capital Expenditures
On the fiscal policy front, government revenues will reverse the 9 per cent short-fall witnessed in fiscal year 2009/10, as hydrocarbon prices remain at stable levels near the fiscal year average oil price estimated at $77 per barrel for Qatari crude. Export volumes and investment income are seen to increase in the medium term as public enterprises continue to transfer large portions of investment income to the budget. Nevertheless, government expenditure is projected to increase in line with GDP.
With increasing capital spending and a number of major Qatari firms tapping credit markets to help finance expansion, the government cutting corporate tax to 20 per cent, in line with a suggested flat tax across the Gulf Co-operation Council, Qatar will witness further investments and cash inflows into the economy. Qatari companies have so far witnessed a healthy beginning to 2010 as aggregate earnings for companies listed on the Qatar Exchange during 9M-10 increased 18 per cent to QAR 23 bn ($6.3bn) from
QAR 19.5bn ($5.4 bn) making Qatar one of the forefront runners in terms of corporate profitability. Such performance compares well with other GCC and international markets that had suffered from the financial turmoil.
Deflationary Pressures
Qatar experienced the sharpest deflation among GCC states in 2009 at 4.9 per cent mainly on the back of a sharp drop in rents, following a high inflation of 15.2 per cent in 2008. In 2010, figures indicate that deflationary pressures eased to 2.4 per cent and are expected to ease further in 2011 due to an increase in international food prices and raw materials and the imported inflation driven by the depreciation of the US dollar against major world currencies (Qatari Riyal is pegged to the US dollar).
Over the medium term, inflation is expected to reach 4 per cent on the back of stabilizing rent prices as the excess capacity in the real estate sector diminishes. Non-rent inflation may witness an increase as the rise in commodity prices in international markets may lead to imported inflation coupled with a growing domestic demand.
Banking sector
Looking forward, the banking sector will remain profitable and well capitalized, and will show resilience to further financial turbulence that might happen in the medium term, supported by the regulatory authorities' prudent policies and commitment to provide banks with liquidity to contain potential financial risks and maintain the stability of the financial system. The Capital Adequacy Ratio (CAR) for the Qatari banks improved to 16.1 per cent in 2009 up from 15.5 per cent in 2008. However, CAR witnessed
no change in 2010 at 16.1 per cent.
Profitability for FY-2009 stood at QAR 9.88bn ($2.71bn), while 2010 witnessed a significant growth of 25 per cent in banks' net profit to QAR 12.34bn ($3.39bn), the highest growth in the GCC region. Qatari Banks' asset quality remains high with non-performing loans (NPL) to gross loans (GL) ratio standing at 1.7 per cent as of December 2009, the lowest among banking sectors in the GCC region. In 2010, however, NPL-to GL inched up to 2 per cent. LLP coverage ratio remained high at 85.1 per cent in 2010, as
compared to 84.5 per cent and 83 per cent in 2009 and 2008, respectively.
Moreover, Qatar Central Bank (QCB) is planning to implement Basel III at the national level which will support the financial system, mainly banks, as almost all banks hold common equity above the 4.5 per cent required in addition to Tier 1 capital above the 6 per cent threshold. Qatar has proposed to establish a single regulator for the financial system to operate under the QCB in an attempt to strengthen financial sector reforms. Qatar already has a sound financial system after weathering the negative imp
act of the global credit crisis after authorities provided sufficient capitalization to banks twice in 2009 and purchased local equity and real estate assets from banks.
Credit Growth
Despite the slowdown in credit growth in 2009 to 11.5 per cent compared to 51 per cent in 2008, latest figures suggest that credit growth started to pick-up as it surpassed the 19 per cent level in 2010. On a relative basis, credit growth in Qatar is compared favorably with that in Saudi Arabia, UAE and Kuwait with corresponding credit growth rates of 6.5 per cent, 2.9 per cent and 0.4 per cent, respectively, over the same period.
Credit to the private sector will be heavily supported by government investments and actions to strengthen the capital base of banks. Qatar Central Bank already has a wide range of instruments to provide liquidity to the market and continues to monitor the developments in the market to provide liquidity and increase transparency among banks and the public without placing pressure on inflation.
Risks to the Economic Outlook
Risks to the medium-term economic outlook may arise from the political unrest in the region, slow global economic recovery, a further drop in property prices, slowdown in credit growth, tight credit conditions in the international capital markets and the reduced availability of financing for projects, in addition to any unexpected negative financial developments in the GCC region. However, Qatar's attempted strategy to diversify the economy will continue to help it limit any downside risks that may arise
from the hydrocarbon sector.
KUWAIT: After avoiding falling into a recession during 2008-2009, Qatar is expected to continue posting double digit growth in 2010 and 2011 Nominal GDP of 29 per cent and 25 per cent, respectively, according to IMF estimates. The country is expected to post the highest growth rate in the GCC region supported by the 5 year QAR 100 bn ($27.5bn) government stimulus plan which will maintain high levels of capital spending on education, health and transport.
The government is placing special emphasis on developing the non-oil and gas sectors of the economy in an effort to diversify sources of income away from the exclusive dependence on hydrocarbons. However, the boost in domestic LNG production through the initiation and development of two major LNG projects with a production capacity of 55mn tons per annum with foreign partners for the purpose of utilizing the North Field gas will stimulate growth. In Q3-10, Qatar's GDP was estimated at QAR 111.25bn ($30.56b
n) compared to QAR 91.85 ($25.23bn) in Q3-09, showing an increase of 21.1 per cent on the back of increased activity in the real estate, insurance, financial services, manufacturing and construction sectors.
Economic fundamentals for Qatar seem promising placing it at the highest ranking among its GCC peers in terms of growth levels in 2010-2011. Looking forward, solid hydrocarbon prices coupled with the robust growth in the credit market will help sustain positive growth levels and provide momentum to the economy in the medium term.
Growth prospects in Qatar remain strong in the medium and long-term. Following a growth of 8.6 per cent in 2009, real GDP is expected to grow by 16 per cent in 2010, the fastest growing economy in the GCC region, owing to an expected growth of 25 per cent in the hydrocarbon sector and an 11.5 per cent growth in the non-hydrocarbon sector, underpinned by the government's continuous massive capital investment which exceeded the QAR 110bn ($30bn) mark over the period 2004-2009. The cornerstone of Qatar's stra
tegy is the government's commitment to diversify the economy by building related industries around the full LNG value-chain and linking upstream, midstream and downstream components. Non-hydrocarbon real GDP is expected to record double digit growth in 2011, fuelled by the significant growth in services and a pick-up in manufacturing and construction activities.
Capital Expenditures
On the fiscal policy front, government revenues will reverse the 9 per cent short-fall witnessed in fiscal year 2009/10, as hydrocarbon prices remain at stable levels near the fiscal year average oil price estimated at $77 per barrel for Qatari crude. Export volumes and investment income are seen to increase in the medium term as public enterprises continue to transfer large portions of investment income to the budget. Nevertheless, government expenditure is projected to increase in line with GDP.
With increasing capital spending and a number of major Qatari firms tapping credit markets to help finance expansion, the government cutting corporate tax to 20 per cent, in line with a suggested flat tax across the Gulf Co-operation Council, Qatar will witness further investments and cash inflows into the economy. Qatari companies have so far witnessed a healthy beginning to 2010 as aggregate earnings for companies listed on the Qatar Exchange during 9M-10 increased 18 per cent to QAR 23 bn ($6.3bn) from
QAR 19.5bn ($5.4 bn) making Qatar one of the forefront runners in terms of corporate profitability. Such performance compares well with other GCC and international markets that had suffered from the financial turmoil.
Deflationary Pressures
Qatar experienced the sharpest deflation among GCC states in 2009 at 4.9 per cent mainly on the back of a sharp drop in rents, following a high inflation of 15.2 per cent in 2008. In 2010, figures indicate that deflationary pressures eased to 2.4 per cent and are expected to ease further in 2011 due to an increase in international food prices and raw materials and the imported inflation driven by the depreciation of the US dollar against major world currencies (Qatari Riyal is pegged to the US dollar).
Over the medium term, inflation is expected to reach 4 per cent on the back of stabilizing rent prices as the excess capacity in the real estate sector diminishes. Non-rent inflation may witness an increase as the rise in commodity prices in international markets may lead to imported inflation coupled with a growing domestic demand.
Banking sector
Looking forward, the banking sector will remain profitable and well capitalized, and will show resilience to further financial turbulence that might happen in the medium term, supported by the regulatory authorities' prudent policies and commitment to provide banks with liquidity to contain potential financial risks and maintain the stability of the financial system. The Capital Adequacy Ratio (CAR) for the Qatari banks improved to 16.1 per cent in 2009 up from 15.5 per cent in 2008. However, CAR witnessed
no change in 2010 at 16.1 per cent.
Profitability for FY-2009 stood at QAR 9.88bn ($2.71bn), while 2010 witnessed a significant growth of 25 per cent in banks' net profit to QAR 12.34bn ($3.39bn), the highest growth in the GCC region. Qatari Banks' asset quality remains high with non-performing loans (NPL) to gross loans (GL) ratio standing at 1.7 per cent as of December 2009, the lowest among banking sectors in the GCC region. In 2010, however, NPL-to GL inched up to 2 per cent. LLP coverage ratio remained high at 85.1 per cent in 2010, as
compared to 84.5 per cent and 83 per cent in 2009 and 2008, respectively.
Moreover, Qatar Central Bank (QCB) is planning to implement Basel III at the national level which will support the financial system, mainly banks, as almost all banks hold common equity above the 4.5 per cent required in addition to Tier 1 capital above the 6 per cent threshold. Qatar has proposed to establish a single regulator for the financial system to operate under the QCB in an attempt to strengthen financial sector reforms. Qatar already has a sound financial system after weathering the negative imp
act of the global credit crisis after authorities provided sufficient capitalization to banks twice in 2009 and purchased local equity and real estate assets from banks.
Credit Growth
Despite the slowdown in credit growth in 2009 to 11.5 per cent compared to 51 per cent in 2008, latest figures suggest that credit growth started to pick-up as it surpassed the 19 per cent level in 2010. On a relative basis, credit growth in Qatar is compared favorably with that in Saudi Arabia, UAE and Kuwait with corresponding credit growth rates of 6.5 per cent, 2.9 per cent and 0.4 per cent, respectively, over the same period.
Credit to the private sector will be heavily supported by government investments and actions to strengthen the capital base of banks. Qatar Central Bank already has a wide range of instruments to provide liquidity to the market and continues to monitor the developments in the market to provide liquidity and increase transparency among banks and the public without placing pressure on inflation.
Risks to the Economic Outlook
Risks to the medium-term economic outlook may arise from the political unrest in the region, slow global economic recovery, a further drop in property prices, slowdown in credit growth, tight credit conditions in the international capital markets and the reduced availability of financing for projects, in addition to any unexpected negative financial developments in the GCC region. However, Qatar's attempted strategy to diversify the economy will continue to help it limit any downside risks that may arise
from the hydrocarbon sector.
© Kuwait Times 2011
