Qatar: Doing Quite Nicely Thank You

The Lights are Still On 

So how is Qatar faring in the face of the Quartet’s boycott?  

Of course, not everything is perfect but as the 2019 IMF Article IV consultation with Qatar demonstrates the country is coping and in some areas doing quite well.

From this point on what follows are a series of direct quotes from the IMF. 

On May 13, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Qatar and considered and endorsed the staff appraisal without a meeting.  

Economic performance improved in 2018. Qatar’s economy has successfully absorbed the shocks from the 2014–16 drop in hydrocarbon prices and the 2017 diplomatic rift. Real GDP growth is estimated at 2.2 percent, up from 1.6 percent in 2017. Headline inflation remained low.  The central government’s fiscal position switched to a surplus of 2.3 percent of GDP in 2018 from a sizable deficit in 2017. Recovery in non-resident deposits and foreign bank funding helped banks increase private sector credit. Banks have been able to diversify the geographical composition of non-resident deposits. The current account is estimated to have reached a surplus of 9.3 percent of GDP in 2018, largely reflecting higher average oil prices. Reserves reached US$31 billion (5½ months of imports) at end-December 2018. Recently, Qatar issued US$12 billion in international bonds, which was more than four times oversubscribed, with lower spreads than in previous issues.

Qatar’s banking sector remains healthy, reflecting high asset quality and strong capitalization. At end-September 2018, banks had high capitalization (CAR of 16 percent) and maintained strong profitability (ROA of 1.6 percent), low non-performing loans (ratio of 1.7 percent), and a reasonable provisioning ratio of 83 percent. Banks are comfortably liquid, with a liquid-asset-to-total-asset ratio of 29.7 percent. Nonetheless, strong credit growth that outpaced deposits resulted in the system-wide loan-to-deposit (LTD) ratio of 103 percent which is higher than the CB’s guidance of 100 percent. After a period of rapid growth, real estate prices in Qatar are adjusting to new levels. According to the real estate price index developed by QCB, following an 82 percent increase during 2012–16, real estate prices fell by 15 percent during 2017–18. Macro-financial prospects remain favorable, though risks skew to the downside.   

The external position is weaker than the level implied by fundamentals and medium-term policy settings. (Annex II). Nonetheless, with gradual fiscal adjustment, the estimated current account gap could be closed in the medium term. While reserves are low relative to the ARA metric, risks are mitigated by large sovereign wealth fund assets (Annex II) and external debt is assessed to be sustainable (Annex III). The peg to the U.S. dollar continues to provide a clear and credible monetary anchor and is considered to be sustainable 

Stress test results indicate that Qatari banks can withstand severe macroeconomic shocks. Given the strong position of the financial system, with low NPLs, adequate provisioning, and solid profitability, banks can comfortably withstand higher NPLs and lower profitability brought about by macroeconomic shocks (see IMF Country Report No. 18/136). Many of the real estate borrowers are reportedly well-diversified large conglomerates that are able to support their loan payments from other businesses.

The recovery in non-resident deposits (by 23 percent y-o-y by December 2018) and foreign bank funding (up by 23 percent) helped banks increase private sector credit by 13 percent y-o-y by December 2018.5 Banks have been able to diversify the geographical composition of non-resident deposits and lengthened their maturity structure.  

The stock market performed well in 2018, with the index recovering its 2017 losses and rising by 23 percent in 2018. Bond yields declined reflecting positive investor sentiment towards Qatar.