Qatar economy is getting worse
Standard and Poor’s has affirmed Doha’s outlook as negative over falling growth.
– Hit by economic, political and diplomatic boycott by the GCC nations, Qatar’s economy is facing headwinds increasingly with economy going bad to worse with every passing week.
International ratings agency Standard and Poor’s has affirmed Doha’s outlook as negative due to slower economic growth and selling its assets to support the fledgling financial sector.
“We expect the ongoing boycott of Qatar’s economy will lead to slower economic growth and hamper fiscal and external performance as outflows of external financing are offset by drawing upon government assets,” S&P analysts said on Sunday.
“We have revised our real GDP growth assumptions down by an average of nearly 1 per cent per year over 2017 to 2020 to reflect the impact of the boycott. There is some potential upside to these projections should the Barzan gas field come online. Real GDP per capita trend growth is weak,” says Benjamin Young, associate director, sovereign ratings, S&P.
“We expect weakened business activity and confidence as a result of the ongoing tensions, which will likely have the impact of denting private sector consumption, investment and credit growth to most sectors of the economy. However, we expect the government’s infrastructure programme to continue to support economic growth. The government has also implemented measures to help boost growth in the tourism sector, including the introduction of lessonerous visa regulations. Should GDP per capita fall further, we could assess the cushion of currently very high economic wealth levels as insufficient to offset Qatar’s weak trend growth rate,” he added.
We expect Qatar to liquidate its assets to support its banking system. this will happen if other gulf states pull out their Qatar bond investment on maturity M.R. Raghu, MD of of Marmore Mena Intelligence
Doha’s monetary statistics showed its foreign assets declined while commercial banks’ balance sheet also shrank by a QR7.6 billion and foreign assets fell QR7.7 billion due to decline in funds due from banks abroad and foreign investments.
The International Monetary Fund has predicted Doha’s real GDP growth slowing from 3.4 per cent in 2017 to 2.8 per cent next year. IMF predicts both hydrocarbon and non-hydrocarbon sectors’ growth slowing from 1.1 per cent in 2017 to 0.2 per cent in 2018 and from 5.7 per cent to 5.3 per cent, respectively.
The cost of living in Doha is projected to jump substantially next with the consumer price index (inflation) shooting up from 2.6 per cent in 2017 to 5.7 per cent next year.
Earlier, Moody’s Investors Service changed the outlook on Qatar’s rating to negative from stable. It also downgraded Qatari banks due to their weakening operating conditions and the potential weakening of Doha’s ability to support its financial sectors.
Focus Economic has predicted that per capita income in Doha will fall from $85,801 in 2013-15 to $60,133 during 2016-18 while GDP growth will slow down to 2.5 per cent during 2016-18 from four per cent during 2013-15. The public debt is also projected to increase to 51.3 per cent of GDP during 2016-18 as compared to 33.4 per cent during 2013-15.
Selling assets
M.R. Raghu, managing director of Marmore Mena Intelligence, forecasts Qatar’s growth rate to drop from 3.5 per cent to around 2.5 per cent for 2017 post the crisis.
As a result of the boycott, Raghu believes the banking sector is expected to take a major hit followed by real estate, consumer goods and tourism.
“We expect Qatar to liquidate its assets to support its banking system. However, this will happen only if other Gulf states pull out their Qatar bond investment on maturity. We estimate about $35 billion to mature in the coming months. In such a case, it could negatively affect Qatar’s rating,” he added.
It is estimated that Doha holds around $340 billion liquid assets and Raghu expects Qatar can liquidate about 20 to 30 per cent of this.
However, S&P warned that it could lower ratings on Qatar if the boycott reduces economic wealth levels to an extent that it no longer assesses GDP per capita as a sufficient cushion to offset Qatar’s weak trend growth rate.
It said that in order to support its economy and banking system, the Qatari government is liquidating and utilising part of its fiscal assets. “If our estimate of the government’s liquid assets were to fall substantially, we could also lower the ratings,” the ratings agency said, adding the negative outlook reflects the potential consequences of the boycott on Qatar’s economic, fiscal and external metrics, especially if the boycott is tightened or prolonged.
Earlier, S&P had downgraded Qatar’s debt as the riyal fell to an 11-year low amid signs that portfolio investment funds were flowing out of the country because of Doha’s diplomatic boycott.
Impact on Islamic finance
Mohamed Damak, senior director, bank ratings at S&P, said the slowdown in Qatar economy will have negative impact on the banking system, including Islamic banks.
“We foresee a drop in the growth of Islamic banking assets [at the end of Q2 2017, total assets growth of the three Islamic banks that reported their results dropped to 4.3 per cent as against nine per cent for the full year 2016 and 17 per cent for the full year 2015] due to lower economic growth and reduced opportunities,” said Damak.
— waheedabbas@khaleejtimes.com