DOHA: Qatar’s commitment to invest heavily in infrastructure, ahead of the 2022 Soccer World Cup, has surged its external debt in the past three years. The country’s external government borrowing has more than tripled since 2009, reaching QR87.8bn in 2011-2012, up from QR28.3bn in 2008-2009.
The gush in external debt has increased Qatar’s reliance on global finance volatility and uncertainty. Reducing the vulnerability to international exposure has become an important policy agenda of Qatar, Investment Bank SICO said yesterday.
To curtail increasing liquidity in the system, and the increasing demand for credit, the Qatar Central Bank (QCB) is looking to build a liquid domestic debt market, which serves both government funding requirements and restrains the effects of excess liquidity in the system.
The Qatari government issued government bonds worth QR 50bn in January 2011, including QR33bn through Islamic Sukuk instruments, in addition to other government securities which drew surplus liquidity from the system. A large percentage of the Qataris government’s external debt, an estimatedQR87.7m, is maturing post 2017. As long as Qatar’s balance sheet continues to grow, along with the running budget surpluses, debt roll-over risk is highly unlikely and the government will be able to refinance its debt or meet maturities.
In January 2013, the IMF suggested introduction of open market instruments to manage liquidity. The Fund hoped this will help Qatar prevent unexpected flows of money from destabilizing the banking system, and controlling inflationary pressure. The IMF also stated Qatari Government has plans to issue three and five year local currency sovereign bonds in 2013, the Bahrain-based Investment bank noted in its monthly briefing.
On the back of this increase in liquidity, developing a debt market has been a key policy priority for Qatar. Qatar is following the example of countries with persistent fiscal surpluses like Norway, Australia and Singapore among others which according to the IMF have successfully developed liquid government securities’ markets. “In doing so, Qatar can move ahead with a diversification agenda and reduce reliance on foreign funding, particularly short-run foreign funding to minimise exposure to global financial market turbulence; meet government funding needs in a non-inflationary manner and expand the avenues through which the domestic investor base can invest”.
SICO noted an active debt market will also provide Qatari banks and other institutions with short- term, risk-free money parking opportunities. Further, government securities will become a reference point for the pricing of other financial instruments, providing public information on inflationary expectations, and financial institutions will be in a better position to manage interest rate risks.The Peninsula
