Qatar witnesses easing of liquidity constraints
19 Mar 2017 - 0:24
By Satish Kanady / The Peninsula
Qatar’s hydrocarbon activities are picking up and liquidity constraints are easing. The rate of year-on-year decline in real estate prices slowed to 4.5 percent in December 2016 after bottoming out in September.
The country’s output expanded by 3.7 percent year-on-year in the third quarter of 2016, thanks to hydrocarbon sector gains; manufacturing activity is weak, though. Oil and gas prices recovered on Opec output cuts in February, but rebounding US shale production may limit further rises, NBK’s economic update on Qatar noted.
Qatar’s bond issuance has proceeded apace as the country looks to finance its budget deficit without tapping its foreign reserves. Almost $14bn worth of sovereign debt has been issued in 2016, including a $9bn USD-denominated bond in May.
Qatar has posted a current account deficit for three quarters in a row (-3.9 percent of GDP in 3Q16) due to the decline in oil & gas export revenues. Public debt has risen 3 years in a row rose as the authorities issued more bonds to finance their spending plans
Reserves improved by 7 percent month-on-month to $33.8bn in January, and still provide more than six months of import cover. The contraction in broad money supply is easing; liquidity has improved thanks to higher energy prices/oil and gas receipts. Contracts awarded (by value) declined by an estimated 50 percent in 2016 due to cutbacks in government capital expenditure and supply chain bottlenecks. The fiscal deficit narrowed to $-1.4bn (-3.6 percent of GDP) in 3Q16 as government expenditures declined by $473m.
Bank assets reached $343bn in January (220 percent of 2016 estimated GDP), driven by improved credit growth. Despite weak private credit growth, total credit growth is steady at 12 percent year-on-year due to improved public sector activity. Non-resident deposits continue to rise dramatically, by 120 percent year-on-year. Public sector deposits are still declining by -13 percent. Non-resident deposits’ share of banks’ funds has doubled over the last year. Banks are also engaging in more debt-financing.
Foreign liabilities have surged as banks increase their reliance on non-resident deposits and overseas funds. Rates remain elevated/bank liquidity tight despite a recent pickup in deposits. The QCB has raised its key lending and deposit rates, after the Fed’s rate hike. Forward rates have eased from 2016 highs, but concerns remain over Qatar’s rising debt levels. CDS’s have eased since June as oil prices firmed and after Opec indicated it would try to rein in supply.