23 March 2017
By Satish Kanady
Qatar’s fiscal deficit is projected to fall to 5 percent of GDP or $8.7bn this year. The deficit is expected to shrink further through 2019 due to increasing hydrocarbon receipts and the ongoing consolidation of current spending.
Citing Qatar Central Bank (QCB) data, the Samba Financial Group noted in its ‘economic monitor’ that Qatar’s deficit for first three quarters of 2016 came in at $9.2bn, or 8.2 percent of GDP.
Qatar’s government debt rose sharply in 2016 as the authorities took advantage of low rates to fund the 2016 budget deficit, and also to secure early financing for 2017. The government’s gross debt holdings are now 47.8 percent of GDP. The authorities already had a significant debt pile from financing the development of the LNG industry, and last year they added to it by raising a $5.5bn syndicated loan and $9bn of bonds abroad, whilst issuing a further $2.6bn in domestic debt.
“Our estimates have government debt increasing to $95bn by 2019, although robust nominal GDP growth should see this decline as a ratio of GDP to 43 percent. Even so, Qatar’s debt to GDP ratio is elevated compared to other GCC members, and its capacity to borrow at the rates it has recently achieved may be constrained if this figure were to head over 60 percent. That said, it is important to restate the buffer provided by the QIA
, both in terms of the size of its assets but also the investment income it provides. Assets are circa $335bn so clearly there is the option of drawing down these in order to finance the forecast deficits”, the analysts said.
According to available data, the deficit adjusted for QIA income demonstrates that the state finances are in a much better shape than the headline deficit figures would suggest. External position weakens as reserves fall but trade balance remains healthy. Qatar’s current account deficit for the first three quarters of 2016 was $6.2bn or 5.6 percent of GDP. The trade balance remained in surplus ($17.9bn), though down 67.1 percent from the same period of 2015.
Samba foresees a current account surplus in 2017 of 2.1 percent of GDP, with surpluses increasing in size through to 2019 in line with higher oil prices. Foreign exchange reserves fell 10 percent in December to $30.2bn, their lowest level since August 2012. Despite this decline, Samba expects reserves to increase this year as the current account benefits from higher oil prices, whilst the capital account improves thanks to new debt inflows and healthy returns from QIA investments abroad.
On the banking sector liquidity tightening, the Samba research note said interbank rates in Qatar continue to trend up, hitting 1.9 in February 2017, up from 1.4 twelve months earlier. The loan to deposit ratio ticked down from 118 in November to 115 in January. Despite the still elevated interbank rates, commercial bank deposits at the Central Bank remain healthy ($3.3bn), though they have fallen from $4.9bn in June.
The Central Bank continues to issue T-bills as well as domestic bonds and Sukuks. Credit growth (12 percent) continues apace whilst deposit growth (14.8 percent) is being held up by rising non-resident deposits.
Increasing transparency of T-bill auctions and improving communication with respect to the QCB’s liquidity operations would allow banks to better anticipate liquidity conditions in the interbank market and strengthen its management.