IMF expects moderate Qatar slowdown

CAIRO: Qatar’s non-oil economic growth will slow this year as the gas-rich nation cuts spending and after a Saudi-led alliance imposed sanctions that hurt trade, the International Monetary Fund said.

The non-hydrocarbon sector will expand 4.6%, the Washington-based lender said in an emailed statement on Wednesday, compared with 5.6% in 2016 and a 4% prediction in a Bloomberg survey of economists.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut ties with Qatar on June 5, accusing the nation of 2.7 million people of destabilising the region through its ties to Islamist extremists - a charge Qatar has repeatedly denied.

The bloc’s measures have exacerbated a broader slowdown in Qatar triggered by lower energy prices, with economists expecting gross domestic product to expand at the slowest pace since 1995 this year.

Authorities reacted quickly to the spat with Qatar’s neighbours, limiting the fallout by finding alternative sources for imports and ensuring key infrastructure projects aren’t disrupted, the fund said.

Even so, imports fell 40% on an annual basis in June and 35% in July, official data show.

Non-oil economic growth is expected to reach 4.8% over the medium term as Qatar, which is spending US $200bil to upgrade infrastructure ahead of the 2022 soccer World Cup, implements fiscal reforms, the IMF said.

Over the longer term, though, the diplomatic fallout could “weaken confidence and reduce investment and growth” in Qatar and other Gulf Cooperation Council nations, it said. Local banks had come under pressure during the dispute, with some lenders in Saudi Arabia, the United Arab Emirates and Bahrain cutting their exposure to Qatar.

Foreign deposits dropped the most in two years in June, and Moody’s Investors Service cut its outlook on Qatar’s banking system to negative on weakening operating conditions.

Policy makers mitigated the impact on local lenders’ balance sheets by injecting liquidity and boosting public sector deposits, and Qatari banks remain “sound, with high asset quality and strong capitalisation,” the IMF said.

Qatar’s current account will return a surplus of about 3.9% of GDP in 2017, compared with a deficit of 7.7% last year due to the import contraction and the recovery in oil prices.