Dubai: While Qatar has recently been successful in raising funds from abroad, the sharp increase in debt makes it vulnerable to shifts in investor sentiments or changes in global liquidity conditions, according to analyst.
The surge in external funding in Qatar is expected to lead to two main risks: an outflow of liquidity and a large open position (debt), Standard & Poor’s said in a recent note.
Qatar’s external systemwide debt has risen sharply over the past few years, reaching 454.3 billion Qatari riyals (about $125 billion) at April end, 2017, with a significant portion coming from Europe and Asia. On the same date, banks had a net external debt position of 182 billion riyals (around $50 billion), representing 23.5 per cent of domestic loans compared with 13.2 per cent at year-end 2015.
Factors such as a general decline in the operating environment, loss of business confidence of the non-oil private sector and external exposure of Qatari banks, particularly to the GCC and Mena [Middle East & North Africa] based customers could result in a spike in non-performing assets (NPAs) if the current crisis remains unresolved over a few months or more.
Data suggests Qatari banks have significant credit exposures to entities within GCC and around the Mena region. A financial stability report published by the Central Bank of Qatar in 2015 put the GCC asset exposure of the banking system at 26.9 per cent of total assets and 15.9 per cent elsewhere in Mena.
“Adverse confidence effects on the private sector and tighter liquidity conditions in the banking system could amplify negative spillovers to the non-hydrocarbon sector,” said Garbis Iradian, Chief Economist of Institute of International Finance (IIF) Mena.
If sanctions are to remain in place for an extended period and ties deteriorate further, the IIF projects the headline growth of Qatar’s economy to decline to 1.2 per cent in 2017 and 2 per cent in 2018, principally due to lower nonhydrocarbon growth impacted by increased uncertainty weighing on investment and a tighter financial environment and perhaps deposit flight which could raise the cost of funds.
Cuts in financial ties and increased counterparty concerns could hinder ease of doing business and trade finance impacting financial performance of Qatar based businesses.
