(MENAFN- The Peninsula) Though subtle, Qatar is heading to make an important shift in management of its economy which is likely to have an impact on the local banks, a Morgan Stanley analysis on Qatar banks noted yesterday.
The country's economic management has been undergoing a change over last 12-18 months. After years of strong GDP growth driven by significant debt-fuelled public spending, the authorities are now targeting steadier, more sustainable growth. The model will continue to be driven by high public spending, but with tighter planning and oversight of large infrastructure projects, lower public debt, increased private-sector 'crowding-in' and stricter regulation of the banking system, Morgan Stanley's EEMEA Insight report said. "Though clarity on the authorities' ultimate objectives remains limited, a key aspect of the new Qatari model will likely see reduced levels of public sector borrowing ...."
A key aspect of the new Qatari model will be reduced levels of public borrowing and Morgan Stanley lower its forecast for medium-term system loan growth to 10 percent from 15 percent on the back of faster repayments of public debt.
According to Morgan Stanley, Qatar's public loans have already started to decline. Private corporate loan growth has remained steady at 10-20 percent year-on-year for the last five years and seems well supported by sustained government project spending. "We trim our earnings forecasts on expectations of lower loan growth and continued competitive pressure on asset spreads", the report noted.
Qatar's government debt balance is expected not only to shrink further below EM average levels, but also to shift in composition. Recent trends suggest
authorities are seeking to normalise outstanding debt levels following a ten-fold increase to QR250bn, since 2007, while simultaneously reducing external vulnerabilities via repayments of international debt.
At a domestic level, a shift from bank borrowing towards alternative means of financial also appears to be in progress.
Morgan Stanley's analysis shows that the public sector will account for over 80 percent of Qatar's announced project pipeline, including oil and gas, between now and 2022, equating to projects worth $212bn. This clearly makes the authorities' tighter project management and oversight a key factor in not only the rate of project spending but also the amounts.
In the short term, Morgan Stanley analysts think, the domestic contracting sector may require a period of adjustment to the tighter oversight of budget and delivery of public infrastructure projects. "We believe Doha Bank's pickup in NPL formation over the last few quarters is related to the expansion of its share of contractor finance over the last two years. Over the long term, though, improved management of large public projects should reduce disputes and hence payment delays, which we believe to be one of the main causes of overdue loans payments in the segment."
On the lower oil prices the analysts believe it is unlikely that even a prolonged period of lower oil prices will cause material reductions or delays in planned public infrastructure spending. "Firstly, we believe the authorities will continue to work to the de-facto deadline of the 2022 FIFA World Cup. Secondly, more conservative fiscal budgeting and improved project management should improve sustainability. Finally, Qatar's large public reserves remain in a significant, if last-resort backstop. That said, one important effect may be reduced deposit formation and lower liquidity in the banking sector, which may pressure funding costs. Historically, Qatar bank's share prices have shown a relatively strong correlation with the oil price, although this relationship seems to have broken down since the start of the "Arab Spring' in early 2010."
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