Heavy borrowing by Qatar to fund mammoth gas projects has nearly tripled its external debt over the past four years but the Gulf country remains a net credit because of its massive foreign assets, a key Saudi bank has said.
By the end of 2010, Qatar’s external debt could peak at nearly $90 billion following the issue of $10 billion sovereign bonds in 2009 as the government sought to provide urgent financial support after the eruption of the global financial crisis in 2008, the Saudi American Bank Group (SAMBA) said in a study.
“Total external debt is expected to reach around $90 billion at the end of 2010 which represents a threefold increase since 2006,” SAMBA said.
But it noted that much of this debt reflects hydrocarbon investment requirements which are now coming on stream and sharply boosting GDP and export earnings.
The debt to GDP ratio is expected to decline this year to 73 per cent from 81.4 per cent in 2009 and in 2011 as nominal GDP rebounds to exceed $120 billion on the back of rising hydrocarbon production and earnings, the study said.
“In addition, hydrocarbon exports are generating large current account surpluses and have allowed the build up of substantial external assets,” it said.
“These are estimated to be the region of around $100 billion, ensuring Qatar retains a net external creditor position.”
The bulk of the country’s foreign assets are controlled by the Qatari Investment Authority (QIA), one of the world’s fastest growing sovereign wealth funds.
At the end of 2007, QIA’s assets were estimated at around $57 billion but they dipped to nearly $52 billion at the end of 2008 because of the market turmoil.
Massive current fiscal and account surpluses caused by a surge in the country’s LNG exports boosted those assets to around $65 billion at the end of 2009 and they are projected to climb to nearly $90 billion at the end of 2010. Forecasts by the Washington-based Institute of International Finance (IIF) showed QIA’s funds abroad could leap to nearly $129 billion at the end of 2011.
IIF gave no reason for the expected sharp rise this year and in 2011 but Qatar has just completed gigantic projects that will allow it to export a staggering 77 million tonnes of liquefied natural gas per year.
The exports are expected to sharply boost its income and further expand its GDP, which is already among the fastest growing economies in the world.
“Over the next couple of years, large increases in hydrocarbons output and exports will continue to generate rapid real GDP growth rates as new LNG, GTL, NGL and petrochemical projects come on stream,” SAMBA said.
“Actual annual growth rates will be sensitive to the timing of new production start up, and recent delays in GTL projects have caused some adjustments to our real GDP projections. In line with recently released data from the IMF we now expect real GDP growth of 16 per cent this year, rising to just over 17 per cent in 2011.”
In the longer term, the report expected growth to moderate to around six per cent in 2012 and then to between 4-5 per cent per annum.
With the moratorium on new North Field projects in place, the pace of investment in hydrocarbons projects has slowed and most major projects are now likely to be completed by 2012-2013, according to SAMBA.
“As a result the national accounts will no longer feel the benefits of large hydrocarbon production and export increases, leading to a slowdown in previously soaring real GDP growth rates,” it said.
“That said the stream of export earnings from existing and soon to be completed export projects will remain substantial and will help finance the authorities’ diversification and infrastructure development agenda.”