Qatar’s economy has weathered the pandemic and the plunge in oil prices relatively well, with the country’s real Gross Domestic Product (GDP) expected to grow by 3.8 percent in 2022, supported by increase in gas production and the substantial increase in tourist receipts for the FIFA World Cup scheduled for November 21 to December 18, 2022, said the Institute of International Finance (IIF) in a report recently.
“We expect modest economic recovery in 2021 driven by strengthening oil and gas prices, a revival in domestic demand as a result of the progress made in vaccination. The banking system has remained relatively resilient amid the pandemic, helped by sound initial capital and liquidity positions. We expect the fiscal balance to shift to sizeable surpluses in 2021 and 2022 as the increase in nonhydrocarbon revenues will more than offset the projected modest increase in spending. A gradual fiscal consolidation beyond 2021 would help preserve net public sector wealth,” the report said.
It pointed that the ongoing recovery is projected to accelerate in 2022 as the third wave of the pandemic recedes. “COVID-19 vaccines have become widely available and oil production cuts have tapered in line with the OPEC+ agreement. However, steady recovery is not assured so long as segments of the Gulf Cooperation Council (GCC) population remain susceptible to the virus and its mutations. We expect the GCC to grow 1.7 percent in 2021 and 4.2 percent in 2022,” IIF added.
High-frequency indicators, including Purchasing Managers’ Index (PMI) and credit to the private sector, point to strong recovery in the private sector, particularly in Saudi Arabia and Qatar. Hydrocarbon real GDP growth is projected at 5 percent in 2022 on the assumption that the OPEC+ production cuts end by mid-2022.
Risks are broadly balanced. On the upside, faster vaccination rates and further progress in reforms could boost non-hydrocarbon growth in 2022. According to the IIF report, GCC central banks will leave their policy rates unchanged through end-2022 as they track US rates in the context of the peg to the US dollar.
Central banks in the region have maintained their liquidity support measures to support the private sector, particularly SMEs, by allowing them to defer payments on existing loans and increase lending to businesses.
The financial soundness indicators as of December 2020 suggest that the banking systems remained resilient amid the pandemic, helped by sound initial capital and liquidity positions. Tier 1 capital ratios exceeded 15 percent in the six GCC countries.
NPLs to total loans were between 2 and 3 PMI in Saudi Arabia, Qatar, and Kuwait, and 4-8 PMI in Oman, Bahrain, and the UAE. Central banks in the region extended the deferred payment program until the end of June to support private sector financing. “Once the forbearance is lifted, we could see a modest deterioration in asset quality. Profitability challenges in the low-interest-rate environment may also limit banks’ ability or willingness to expand private sector credit at the same pace as in 2020,” IIF added.
The Institute of International Finance (IIF) is the global association of the financial industry, with more than 450 members from more than 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth.
