Diligent Supervision Must Continue to Safeguard Qatar's Well-Capitalized Banking Sector: IMF

The IMF has suggested diligent banking supervision in Qatar should continue for banks to promptly recognize and address NPLs and comply with provisioning and capital requirements. In its latest country report, the International Monetary Fund said Qatar’s banking sector remains well-capitalized and liquid, with non-performing loans (NPLs) at relatively low levels. However, IMF noted Qatari banks’ large and increasing exposure to foreign liabilities poses potential risks as global financial conditions tighten, while the existing prudential framework and efforts to lengthen the maturity and diversify the sources of foreign funding are mitigating factors. Strong state support provides the last line of defense, but sovereign contingent liabilities could increase. Prudential measures and reforms to promote domestic stable funding could help to alleviate the risks. Prudent public finance management and a reduced public sector’s footprint in the domestic banking sector could avoid crowding out private credit.

In its report, IMF said to balance the need to facilitate the recovery and to ensure banking sector strength, a carefully calibrated exit from remaining support measures is crucial. In this context, the IMF noted: “Planned gradual reduction in the allocation for the zero-interest repo facility is welcome, while the strength of the economic recovery would allow the exit from the blanket loan moratorium in the near future — we recommend replacing it with time-bound measures targeting distressed but viable borrowers. Unviable firms should be resolved through an enhanced insolvency framework.”

IMF noted: “Amid rising hydrocarbon prices and a favorable fiscal outlook, the authorities’ commitment to medium-term fiscal consolidation is particularly welcome. A balanced and growth-friendly consolidation strategy could help to achieve the dual objectives of intergenerational equity and diversification. “The strategy would call for diversifying revenues and accelerating the implementation of the value-added tax, enhancing current spending efficiency, and reorienting spending to promote productivity, economic diversification and a greener economy. “The implementation of the strategy could be underpinned by a well-designed medium-term fiscal framework (MTFF) and enhanced fiscal transparency and governance.”

IMF noted: “A balanced and growth-friendly fiscal consolidation strategy could help to achieve the dual objectives of intergenerational equity and diversification. The authorities’ strong reform efforts during the pandemic should continue to accelerate diversification and build a knowledge-based, stronger, more inclusive and greener economy.” IMF hailed the “Qatari authorities’ strong response to the pandemic” and said it has helped to minimize the negative impact of the pandemic and facilitate the recovery. Near-term growth will be boosted by the 2022 FIFA World Cup and favorable hydrocarbon prices. The ongoing LNG expansion project is expected to support medium-term prospects, IMF noted.

IMF also noted that Qatar’s economic recovery is gaining strength on the back of rebounding domestic demand, higher hydrocarbon prices, and the preparation for the 2022 FIFA World Cup. Real GDP growth is thus expected to accelerate to 3.2% in 2022. The North Field LNG expansion project will support growth prospects and further strengthen fiscal and external positions over the medium-term. Downside risks to the outlook stem from potential new virus strains, geopolitical tensions and conflicts, tighter and more volatile global financial conditions and energy market volatility.
In the long run, while Qatar’s focus on LNG can help to ease the energy transition process, IMF said and noted, “there is the ultimate risk that the global shift to renewals could reduce demand for hydrocarbon.”

“To secure the recovery and foster stronger and more diversified growth, policy priorities include to carefully manage the exit from remaining financial sector support to safeguard banking sector strength, embark on a growth-friendly medium-term fiscal consolidation, and further advance structural reforms to achieve the goals in Qatar National Vision 2030. The IMF statement followed “virtual discussions with the Qatari authorities led by Ran Bi to conduct the 2022 Article IV consultation from February 13 to March 1 this year.”