The ongoing embargo on Qatar by some Gulf and Arab states 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 an S&P Global Ratings report.

 

 However, the Qatari authorities are utilising the country's large fiscal assets to limit the impact, it said.

 

S&P Global Ratings 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 it was placed on June 7, 2017. The transfer and convertibility (T&C) assessment is 'AA'.

 

"The negative outlook reflects our view of the potential consequences of the boycott on Qatar's economic, fiscal, and external metrics, especially if the embargo is tightened or prolonged," it said.

 

"We could lower our ratings on Qatar if the embargo reduces economic wealth levels to an extent that we no longer assess GDP per capita as a sufficient cushion to offset Qatar's weak trend growth rate. We could lower the ratings if policy predictability in Qatar were to become more uncertain. 

 

"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. We could raise the ratings if we saw domestic institutions mature faster than we expected, alongside significant improvements in transparency regarding government assets and external data quality," it said.

 

The ratings reflect 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, S&P Global said. 

 

"While we expect that economic growth will slow as a result of the embargo, we still expect the government's infrastructure plan 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). We expect further non-resident deposit outflows as they mature, which we expect will continue

to happen in an orderly manner, limiting the likelihood that substantial additional support from the government to the banks would be needed. 

 

"We do not expect the government's fiscal flow metrics to be materially altered by the embargo. Finally, while we expect external finances 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 our forecast through 2020," it added.

 

Institutional and Economic Profile: Government policies will remain supportive of economic growth. Decision-making is centralised at the level of the emir and the ongoing boycott complicates policy predictability, in S&P Global's view. "However, we expect government policy to remain supportive of economic growth and fiscal metrics to remain strong," it said.

 

"Under our base-case, we assume that the current boycott will continue for an extended period, but will not materially escalate," it added.

 

Also, it said the economic growth will slow but the government's infrastructure plan will continue to support economic activity.

 

"We expect the authorities to continue with key macroeconomic policies of fiscal consolidation and the economic-growth-enhancing $200 billion infrastructure development plan for 2014-2020. However, with the boycott in place, additional fiscal efforts may be required. Qatari authorities' policy response to falling oil prices since 2015 has been relatively strong and included reigning 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." - TradeArabia News Service