Qatar’s $68bn foreign debt leaves its banks in a similar position to Dubai before the 2008 crisis [arabianmoney]

Qatar is the darling of the frontier markets with the lowest interest rates on its government debt. But the tiny Gulf State has become dependent on foreign funding. Total foreign claims of $68 billion leave its banks in a similar position to Dubai before the late 2008 global financial crisis, warned The National today.

Bank loans to Qatar have rocketed this year as the country plans to spend $39 billion over the next two years on infrastructure including a metro, port facilities and the new airport. Qatar is to host the World Cup soccer tournement in 2022 and needs to vastly improve the urban infrastructure of Doha for that event.

Safe haven

The emirate is presently seen as a safe haven by global banks because of its foreign assets and huge gas reserves. Ten-year bonds pay a coupon of 3.2 per cent and hit this record low this week.

However, the US shale gas revolution has sent the price of natural gas tumbling stateside and while nobody doubts the scale of the Qatari resource some commentators are beginning to wonder if its long-term value has not been overestimated.

All the same it is the eurozone financial crisis that poses the most immediate challenge for Qatar in raising funds. Bank for International Settlements’ data shows 53 per cent of foreign claims on Qatari banks are with European banks, leaving the emirate vulnerable to a funding squeeze with eurozone banks expected to deleverage by $2 trillion this year.

Qatar’s domestic financial services sector is too small to take up the slack and in any case ’sector-wide loans currently outstrip deposits by a wide margin – similar to the situation in Dubai’s banks before the onset of the global financial crisis’, reported The National article.

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