DOHA (The Thursday Times) — Qatar’s hydrocarbons sector remains the backbone of its economy, with the nation striving to nearly double liquefied natural gas production by the end of the decade. However, as the country seeks to diversify its economic base, the non-oil sector has lagged behind. To stimulate growth in this area, the government has announced plans to write off private sector loans, particularly for small and medium-sized enterprises (SMEs) that benefited from the National Response Guarantee Program (NRGP), launched during the Covid-19 pandemic.
Supporting the private sector through loan write-offs
The National Response Guarantee Program was introduced in 2020 as a lifeline for businesses during the economic uncertainty caused by the global pandemic. It allowed private sector companies to access state-backed loans, totalling around $1.4 billion, with the government providing full guarantees. Companies could also move their loans from commercial banks to the Qatar Development Bank (QDB) to benefit from more flexible repayment terms. Now, Qatar is looking to forgive some of these loans, particularly for SMEs, in a bid to make struggling businesses more viable.
This initiative is still in its early stages, and details about the magnitude of the loan write-offs are yet to be clarified. However, it is widely expected that the majority of the affected loans will be those taken by SMEs. Industry analysts believe this will provide much-needed relief for small businesses, helping them stabilise in the short term and become more competitive in the medium term, ultimately benefiting the wider economy.
Potential impacts on Qatar’s banking sector
The prospect of loan write-offs has raised questions about how the Qatari government will compensate banks for the ensuing losses. One possibility is direct compensation for the banks, while another is for the state to offer guarantees for the loans, leaving the financial risk with the banks. Whichever approach the government adopts, the scheme is expected to ease pressures on the private sector and offer significant support to the non-oil economy.
The Qatari banking sector has faced growing challenges in recent years, with non-performing loans rising to over three percent of total loans in 2023. Despite this, domestic lending has continued to grow, with the total value reaching over $350 billion by August 2024. Of this, a substantial portion has been directed towards the public sector, with notable allocations to services, general trade, and real estate. However, lending to contractors has decreased as the country completes its infrastructure investments related to the 2022 FIFA World Cup.
Short-term financing and future growth
In addition to writing off SME loans, the government has also announced new short-term financing options for companies that have already settled their loans under the NRGP. These interest-free loans will provide additional support to businesses that require working capital to continue operating.
Qatar’s non-oil GDP is expected to grow by just two percent this year, following only a marginal increase the previous year. Aside from tourism, which has seen positive growth, other non-hydrocarbon sectors have struggled to expand. Experts agree that while the planned loan write-offs are a step in the right direction, more widespread non-oil sector development projects are needed to give the economy the boost it requires.
Hydrocarbons and future development
While Qatar’s non-oil sector faces challenges, the hydrocarbons industry continues to thrive. The country’s ambitious plan to increase liquefied natural gas production from 77 million to 142 million tonnes per year by 2030 is a critical part of its economic strategy. Most of Qatar’s project awards in recent years have been in the hydrocarbons sector, highlighting the continued dominance of this industry.
The banking sector is expected to see stronger loan growth from 2025 onwards as the North Field expansion progresses and requires further infrastructure development. This expansion will help offset the slowdown in investment following the completion of World Cup-related projects. For now, however, Qatar’s economy remains highly reliant on its oil and gas revenues, and the country’s non-oil sector still has a long way to go before it can match the success of its hydrocarbons counterpart.
