The access to international capital markets and liquidity injections from the Qatar Investment Authority (QIA) will keep Qatari banks’ solvent even in 2018-19, according to the Economist Intelligence Unit (EIU). But access to international capital markets will be at “rising premiums”, the EIU said in a risk assessment update. The EIU noted that Qatar’s economic diversification investment projects will “sustain robust growth” until 2030, before slowing thereafter.
“There remains potential for bursts of high growth if further gas export projects, beyond those planned for the mid-2020s, are approved by the government. Diversification and the expansion of the services sector, funded by the state’s hydrocarbons wealth, will also provide opportunities for growth. The population will continue to increase, largely through ‘immigration’, to 3.8mn in 2050. As a result, growth in real GDP per capita will be much slower than the headline growth,” the EIU said. In its rating, the EIU’s credit rating agency said Qatar’s overall score only improves slightly in 2018-22, but its ranking declines as other countries improve faster, falling from 36th to 41st globally.
“The weakening in Qatar’s macroeconomic environment, as a result of lower energy prices serves as drags on its overall business environment outlook. Set against this, economic reforms help to improve its scores in most other components of the business environment,” the EIU said. In particular, policy towards foreign investment, and private enterprise and competition improve markedly, spurred on, in part, in an effort to counteract the regional blockade on Qatar.
“The ongoing investment programme also further improves the already strong state of infrastructure in Qatar,” the EIU noted. The EIU has kept its Qatar rating unchanged at ‘BB’, reflecting the stalemate that followed the June blockade on Qatar by four Arab states. Although capital spending cuts and import compression have helped to improve the fiscal and external balance projections since June, the country’s real economic growth has slowed. Yet the large stock of liquid reserves at the QIA, the sovereign wealth fund, is largely accessible by Qatari sovereigns, minimising the risk of an external debt default in 2018-19.
The currency risk rating is unchanged at ‘B’, as the “improvement in the external balance is offset by the downward trend” in the Qatar Central Bank and QIA reserves since June. Nonetheless, EIU said the “current stock of financial buffers at the QIA is sufficient to maintain the currency peg to the dollar for several years, meaning that the risk of devaluation is negligible at present.”