Analysis Economy Qatar to write off SME loans in bid to boost non-oil growth By Matt Smith October 11, 2024, 1:41 AM Shell Hydrocarbons are Qatar's most important source of revenue, and it is aiming to nearly double liquefied natural gas production by 2030 $1.4bn guarantees during Covid Non-oil GDP trailing oil sector Only tourism showing growth Qatar will write off some private sector loans as part of government efforts to boost the subdued non-oil economy. Its government said on Wednesday that the loan write-offs will include those for Qatari companies “benefiting” from the National Response Guarantee Program (NRGP), launched in 2020 to support businesses during the Covid-19 pandemic. State-run Qatar Development Bank (QDB) launched the NRGP in 2020, with Qatar providing full guarantees for private sector borrowers. These guarantees totalled QAR5 billion ($1.4 billion). Participating companies could also transfer credit facilities from commercial banks to QDB, which would provide more flexible payment terms. “There has been no clarification related to the magnitude of the potential write-offs, although it’s fair to assume most would be SME loans,” says Chiro Ghosh, vice president for financial institutions at Bahrain’s Sico Bank. “This is at a very early stage, but it will help the SME sector.” Ghosh says the new initiative “would not only provide a near-term relief for these SME entities, but would also make their struggling business more viable over the medium-term period, which may in fact have a positive knock-on effect on the overall economy”. North Field expansion to power Qatar’s economy Qatar’s non-oil companies optimistic despite higher costs Sales surge but rents fall in Qatar property market “One possibility is that the government compensates banks to write off these loans,” says Ghosh. “A second possibility may involve the government providing some kind of guarantee on the borrowers’ behalf, but the risk still resides with the banks. “It’s too early to know what Qatar intends to do exactly in regard to this new announcement, but it’s more likely that the government will compensate banks for any losses from the ensuing loan write-offs.” The cabinet also proposed a scheme to provide short-term financing for Qatari companies that previously benefited from the NRGP to fund their working capital. QDB will offer companies that have already settled their loans with the NRGP further short-term interest-free loans. Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB), says the planned loan write-offs are “a positive step that will reduce any underlying pressures on the private sector”. She adds: “They will be beneficial for the non-oil economy, but what would provide more impetus would be if wider non-hydrocarbon development projects pick up.” ReutersOnly tourism in the non-oil sector in Qatar is showing any growth Qatar’s non-oil GDP will expand by 2 percent this year, up from 1 percent in 2023, according to the International Monetary Fund. Hydrocarbons remain the Gulf state’s most important source of revenue, with Qatar aiming to nearly double liquefied natural gas production by 2030. Yet aside from tourism other industries are struggling to expand significantly. The banking sector’s problem loans to total loans ratio was 3.61 percent in 2023, up 15 basis points year on year and the highest since at least 2010, S&P Global data shows. The industry’s domestic lending totalled QAR1.28 trillion ($351.5 billion) as of August 31, up 3.8 percent since the start of 2024. Of this, QAR391 billion – 30.6 percent – was to the public sector. Services (22 percent), general trade (14.8 percent) and real estate (14.6 percent) were other sectors representing a sizeable share of bank lending. Qatar’s vast spending ahead of hosting the 2022 World Cup means the country has little more to do in terms of expanding its infrastructure for the time being. Lending to contractors fell in August versus a year earlier, according to ADCB analysis. Qatar will increase its liquefied natural gas production to 142 million tonnes annually by 2030 from 77 million tonnes currently. Its North Field is the world’s largest. “Bank sector loan growth has been sluggish and will only accelerate from mid-to-late 2025 to finance the further North Field expansion and associated infrastructure,” says Ghosh. Four-fifths of Qatari project awards this year have been in the hydrocarbons sector, ADCB research shows. “This also reflects that the investment programme linked to the World Cup is done and there is excess capacity in many areas,” adds Malik.