Private sector credit in Qatar is expected to “moderate” to single-digits over the next two years, although it is “still growing at a robust pace”, Samba’s new country report shows.
Consumption and investment have also been hit as lower oil prices have put downward pressure on asset prices and confidence, it said.
Reduced government spending has undermined bank deposit growth, tightened liquidity and pushed up interbank rates — exacerbated by government debt issuance.
The clearest impact of the lower oil prices can be seen in the country’s external accounts.
Qatar’s current account moved into deficit ($2.3bn) in the first quarter of 2016. The deficit was caused by a 35% y-o-y fall in the value of exports and a 23% increase in the import bill.
Samba foresees a “small” current account deficit in Qatar this year, turning to a “surplus” next year as oil prices improve and the strong dollar reduces the cost of imports.
The country actually maintained a trade surplus of $1.5bn along with a small surplus in the income account of $120mn, but large remittances outflows of $3bn tipped the current account into deficit.
“We expect a fiscal deficit this year of around 5% of GDP, and 2% in 2017, before the recovery of oil prices allows a small surplus in 2018. The authorities have made significant efforts towards fiscal consolidation, whilst most GCC countries have initially focused on cutting capital spending; Qatar intends to maintain elevated capex in order to drive its infrastructure spending through to 2022. Instead, the country has targeted current spending,” Samba noted.
There is already evidence of fiscal consolidation, the subsidy on petrol has been cut with prices rising 30-35% in January.
The authorities have implemented a pricing mechanism, which fluctuates monthly to reflect changes in global prices, production and distribution costs in Qatar as well as prices elsewhere in the region.
The utility company Kahramaa has implemented a new ‘cascading’ price structure for water and electricity supplied to homes and businesses, which will increase utility bills, especially for those who consume the resources liberally.
Liquidity remains tight in the banking sector with the loan-to-deposit ratio standing at 115 in June, down slightly on May (118).
The improvement in the ratio may have been a result of some of the $9bn in foreign capital the sovereign raised in May finding its way into the local banking system.
Government-related deposits (circa 30% of total deposits) continue to fall, although overall deposit growth is still positive thanks strong non-resident deposit growth.
Despite constrained liquidity the government issued $1.3bn of domestic bonds and sukuks in August for which it received offers totalling $2bn, Samba said.