Qatar economy in quagmire

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. We note that 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.

"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 less-onerous 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.

Doha's monetary statistics showed that its foreign assets declined in the month of June while commercial banks' balance sheet also shrank by a QAR7.6 billion and foreign assets fell QAR7.7 billion due to decline in funds due from banks abroad and foreign investments.

International Monetary Fund has predicted Doha's real GDP growth slowing down from 3.4 per cent in 2017 to 2.8 per cent next year. IMF predicts both hydrocarbon and non-hydrocarbon sectors' growth slowing down from 1.1 per cent in 2017 to 0.2 per cent in 2018 and 5.7 per cent to 5.3 per cent, respectively.

"Growth is expected to slow in the medium term, as public investment growth tapers off and hydrocarbon output continues to slow down," IMF had said in a note earlier.

The cost of living in Doha is also projected to jump substantially next with 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 and affirmed the long-term issuer and senior unsecured debt ratings at Aa3. It also downgraded Qatari banks due to their weakening operating conditions and the potential weakening of Doha's ability to support its financial sectors. It also

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 during 2016-18 of GDP as compared to 33.4 per cent during 2013-15.

Selling assets to support economy

MR 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 crisis.

As a result of boycott, Raghu believes that 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 country rating," he added.

- waheedabbas@khaleejtimes.com