The ongoing boycott of Qatar’s economy by several countries will lead to slower economic growth and hamper fiscal and external performance as outflows of external financing are offset by drawing upon government assets, said S&P.
Qatari authorities are utilising the country’s large fiscal assets to limit the impact of the boycott.
On 25 August, the ratings agency affirmed its ‘AA-/A-1+’ long- and short-term foreign and local currency sovereign ratings on Qatar. The outlook is negative. The ratings were removed from CreditWatch with negative implications, where Qatar was placed on 7 June 2017, two days after the boycott started. The transfer and convertibility (T&C) assessment is ‘AA’.
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.
The long- and short-term ratings on Qatar at ‘AA-/A-1+’ reflects the expectation that the authorities will continue to actively manage the impact of the boycott while preserving Qatar’s core rating strengths, including strong public finances.
While economic growth is expected to slow down as a result of the boycott, the government’s infrastructure plan is expected to underpin economic expansion and to partly offset low confidence and reduced consumption.
The government has taken measures to support confidence in Qatar’s banking system, including the repatriation of deposits previously held abroad into the domestic banking system belonging to the sovereign wealth fund Qatar Investment Authority (QIA).
Further non-resident deposit outflows is expected as they mature, happening in an orderly manner, limiting the likelihood that substantial additional support from the government to the banks would be needed.
While external finances is expected to weaken in the short term, higher oil price assumptions from 2019 and an assumption that measures will not escalate further, should underpin an improving picture in the outer years of the forecast through 2020.
Fiscal efforts
However, with the boycott in place, additional fiscal efforts may be required. Qatari authorities’ response to falling oil prices since 2015 has been relatively strong and included reining in current expenditures, merging line ministries, and implementing numerous cost-saving initiatives within its core government-related entities (GREs). In comparison with regional peers, fiscal deficits have been modest as a result and their financing strategy clear.
In response to the boycott, the government is using some of its assets to support the economy and banking system, which has significantly reduced potential banking system volatility.
Qatar or the boycotting nations are not expected to change their current stance. Domestic political and social stability prevails in Qatar, despite what S&P views as only gradual political modernisation and a highly centralised decision-making process.
The countries boycotting Qatar include Bahrain, the UAE, Saudi Arabia, Egypt, Yemen, Mauritius, Mauritania, and the Maldives. M