Qatar's government debt is expected to scale down to 27% of GDP (gross domestic product) by 2026 from about 45% in 2022, according to Standard and Poor's (S&P), an international credit rating agency.
In its latest report, the rating agency said the government intends to reduce its overall debt-to-GDP ratio and to rebalance the share of foreign currency debt in the total, aiming for 50%, from 56% in 2022.
Expecting the government's debt-repayment strategy to reduce total general government debt to 27% of GDP by 2026, from about 45% in 2022; the report said Qatar’s net fiscal asset position will remain a rating strength, averaging 105% of GDP over 2023-26.
Despite the strong aggregate external position, Qatar stands out in the GCC (Gulf Co-operation Council) as having a "significant" amount of net external banking sector liabilities, mainly divided between short-term non-resident deposits and, more recently, interbank lines, which keep external financing needs high, it said.
Qatar ran current account surpluses over 2017-19, but at the same time, borrowed externally to fund infrastructure investment within the country, according to S&P.
"Given the elevated level of financial sector external debt, in our view, Qatari banks could be vulnerable to shifts in investor sentiment amid the tightening of monetary policy," it said.
Finding the recent declining trend in banking sector external liabilities, prompted by the Qatar Central Bank's (QCB's) regulatory directives; the rating agency said: "We expect this trend will continue as nonresident deposits mature and credit growth slows in line with weaker economic activity and following the completion of some major infrastructure projects."
Beyond the risks stemming from banks' short-term external funding profiles, the financial system coped well with the pandemic and the subsequent withdrawal of forbearance measures, according to S&P.
Stressing that the rising interest rates should support profitability and bolster already strong levels of capitalisation; it said as a result, "we expect credit losses will remain elevated in 2022, at about double their pre-pandemic rates of 50 basis points (bps), but that asset quality will remain robust."
Finding that inflation increased in Qatar last year, averaging 5%; S&P said it expects the consumer price index to moderate to 3% in 2023.
Amid rising inflation, the QCB has increased the repurchase rate by 475 bps since the beginning of 2022, to 5.75% in March 2023, following the rate hikes by the US Federal Reserve.
Since January 2022, QCB repo rate has risen from 1% to 1.25% in March, then to 1.75% in May, 2.5% in June, 3.25% in July, 4% in September, 4.75% in November, 5.25% in December, 5.5% in March and the 5.75% in May 2023. In 2022, the average repo rate was 2.77% and it was 1% in 2021.
"We expect the Qatari riyal to remain pegged to the US dollar and QCB interest rate policy to broadly follow that of the US Federal Reserve," it said.
