QIA’s foreign assets to remain untouched

Good economic judgement prevails as the Government decides to refrain from liquidating assets as QIA inclines towards passive investments

Jean-Michel Saliba, vice president and economist at BofA Merrill Lynch
Jean-Michel Saliba, vice president and economist at BofA Merrill Lynch

In a strategic move, the Government of Qatar has decided to leave alone and not to tap the Qatar Investment Authority’s (QIA) foreign assets, Bank of America Merrill Lynch (BofAML) has reported in its recent May 2017 Macro Monthly Report.

This is in part due to the rate of return on QIA assets being greater than the cost of borrowing and as it allows QIA's investment income to be reinvested.

In BofAML’s opinion, this decision may also reflect the lower liquidity profile of QIA although it appears QIA is now looking at increasing exposure to passive investments. Authorities are expected to decide in June or September of this year whether to issue an international bond or not.

It was suggested that enough external financing was raised last year to pre-finance a portion of fiscal needs this year. If an external issuance takes place, it was suggested that a large bond could be raised, in line with historical precedents. In part, this may serve to alleviate domestic liquidity, the research note indicated.

It also suggested improvement on the fiscal front but that a further external debt (EXD) issuance is not be excluded this year. As market expectations have been guided towards no issuance this year, a large external issuance may push a non-Qatari say Kuwait EXD to trade tighter than Qatari EXD.

According to Jean-Michel Saliba, BofAML vice president and MENA economist for the UAE, Qatar, Kuwait and Bahrain, the recent uptick in the Qatar Government’s deposits in the banking sector suggests that a portion of external bond proceeds were deposited locally.

The 2017 budget is based on oil prices at $45/bbl and factors in a deficit of $7.8bn, constituting 4.5% of GDP. Given the likely revenue outperformance, much will depend on spending discipline as spending is budgeted flat to last year's budget with current spending down and capex spending up.

 

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