As a strategic decision, Qatar seems to have taken a decision not to tap the Qatar Investment Authority (QIA) foreign assets. This is in partially due to the rate of return on QIA assets being greater than the cost of borrowing and as it allows QIA's investment income to be reinvested, Bank of America Merril Lynch (BofAML) said in its Macro Monthly report, yesterday.
“It may also in our view reflect the lower liquidity profile of QIA although it appears QIA is now looking at increasing exposure to passive investments. Authorities guided that they would decide in June or September whether to issue an international bond or not”, BofAML research note said.
It was suggested that enough external financing was raised last year to pre-finance a portion of fiscal needs this year. If an external issuance takes place, it was suggested that a large bond could be raised, in line with historical precedents. In part, this may serve in our view to alleviate domestic liquidity.
The recent uptick in government deposits in the banking sector suggests that a portion of external bond proceeds were deposited locally. The 2017 budget is based on oil prices at $45/bbl and pencils in a deficit of QR28.3bn ($7.8bn; 4.5 percent of GDP). Given the likely revenue outperformance, much will depend on spending discipline as spending is budgeted flat to last year's budget (current spending down, capex spending up).
“Our meetings suggested improvement on the fiscal front but that a further external debt issuance is not be excluded this year. As market expectations have been guided towards no issuance this year, a large external issuance may push Kuwait EXD to trade tighter than Qatari EXD, in our view”, the GCC country outlook by BofAML’s MENA Economist Jean Michel-Saliba on Qatar, Kuwait, UAE, Saudi Arabia, Oman and Bahrain noted.
On UAE, the BofAML analysts said the economy is still soft-landing. The meeting in Abu Dhabi and Dubai suggest that the UAE has managed a soft landing, with a less pronounced cycle than in 2008.
“We expect non-oil real GDP growth to have bottomed out as the fiscal drag eases and infrastructure activity picks up.
© The Peninsula 2017
