According to the report, the sharp outflows of foreign funding sparked by the June 2017 outbreak of the GCC crisis have gradually reversed over 2018.
While most investors based in boycotting GCC states like Saudi Arabia, and the UAE appear to have completed their withdrawal from Qatar, the report said, others based in Asia and the West have scaled up their presence in the country.
“Foreign investors have likely been assured by a lack of escalation in the crisis, as well as Qatari authorities’ demonstrated willingness and ability to support the local economy, most notably through placing large amounts of foreign currency deposits with local banks to mitigate funding pressures over the second half of 2017 and the first half of 2018,” the report said.
Rising hydrocarbon prices and thus government revenues have probably also served to underpin confidence in Qatar’s overall macroeconomic stability.
In turn, the report said, the authorities have begun to pull deposits back out, causing banks’ aggregate deposit base to decline by 1.5 percent year-on-year (y-o-y) in 2018.
According to the Planning and Statistics Authority’s 11th economic outlook, this phased withdrawal is designed to return the banking system dynamics “to the fundamentals of supply and demand”, implying the post-June 2017 liquidity injections were intended as a one-off, temporary measure.
“As such, and because we also expect private sector deposit growth to prove sluggish amid still-weak economic activity and limited scope for further interest rate hikes, we forecast overall deposit growth at just 2.9 percent y-o-y in 2019, far below the recent 10-year average of 14.6 percent,” the report said.
Meanwhile, the report said, it expected loan growth to remain relatively subdued, keeping the loan-to-deposit ratio broadly stable.
“In particular, we believe the ongoing trend of declining public sector loans will continue over the quarters ahead, weighing on the headline figure,” it said.
“Qatar’s fiscal balance returned to surplus in 2018 and with numerous 2022 FIFA World Cup-linked projects nearing completion, we expect the public sector’s infrastructure-related financing needs will be more limited,” the report said.
In contrast, the report said, private sector loans at 57 percent of total loans have seen double-digit expansion throughout the past 10 months, driven primarily by the services and trade segments.
“We believe private sector credit demand will remain healthy over 2019 as economic activity inches up, but note that this would only partially offset the declining trend in public sector borrowing. Overall, we forecast loan growth to reach 3.6 percent y-o-y in 2019, up from 3.2 percent in 2018, implying a modest increase in Qatar’s loan-to-deposit ratio to 1.168 this year, compared with 1.161 in 2018,” the report said.
“Foreign reserves have risen back up over the past year to reach $30.4 billion in January 2019 and we still estimate sovereign wealth fund assets at well over 150 percent of GDP, implying the state can comfortably offer support in case of another liquidity crunch,” the report said.
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