Qatar's financial risks moderate: IMF document

With the banks’ balance sheets remaining strong, Qatar’s financial risks are moderate. However, as the macro-financial linkages can amplify the effects of oil price movements, the risks need to be carefully monitored, International Monetary Fund (IMF) advised Qatar in its latest policy recommendations.

The IMF document noted that  the Qatar Central Bank (QCB) is strengthening its financial stability risks monitoring by developing an early warning system (EWS). QCB has already constructed a risk index, namely the Banking Stability Index (BSI), which includes five risk factors in the banking sector  which together with stress testing monitor banking sector risks, including liquidity risks. EWS will identify the key vulnerabilities going forward.  The Fund said a weaker government spending is tightening  the banking sector liquidity, and moderate credit growth which could possibly impact the quality of asset prices thereby generating weaker bank balance sheets and negative wealth effects. 

“ The buildup of liquidity risk related to short-term foreign borrowings channeled into funding medium and long-term domestic lending needs to be carefully monitored. QCB has managed liquidity as reflected by low variability in interbank rates. The development of the domestic sovereign debt market, and in particular the issuance of T-bills, has helped QCB to manage liquidity. However, developing a liquidity forecast framework would further enhance QCB’s ability to manage the timing and size of liquidity management operations”,  noted IMF document.

Qatar has made significant efforts to develop its domestic government securities market but further progress is still needed. An independent debt office, the Office for Management of Credit Policies and Debt has been established. However, a transparent debt management strategy is still not in place. 

Currently, little information is publicly available beyond the basic results for previous T-bills auctions.  Disclosures are key to enhance good governance, transparency, and accountability. In addition, with regard to debt strategy, disclosure of debt management goals and instruments strengthens the strategy’s effectiveness and credibility. Transparency and simplicity also help reduce uncertainty among investors and lower transactions cost. 

It is best practice to publish an annual report in which the results of the issuances are presented in light of the stated strategies and targets. 

The lengthening of the maturity profile of debt issuance will also help the emergence of a risk-free yield curve across the term structure which would serve as a reference for pricing other financial instruments.