DOHA: Qatar’s financial woes are set to aggravate further as sanctions imposed by four Arab countries began to hit its economy harder and faster amid warnings by major rating agencies that the Gulf state has to slash its capital spending on projects and infrastructure.
The impending spending cuts would a further setback for Qatar, which has to spend billions of dollars as it prepares to host the soccer World Cup in 2022, analysts said.
Fitch, the latest global credit rating agency to raise the alarm over the dismal economic prospects faced by the country beset by regional isolation and falling oil revenues, predicted on Monday that the Qatari government’s net foreign assets would fall to 146 per cent of gross domestic product this year from 185 per cent last year, as the government moves money into local banks to offset outflows due to the sanctions.
Fitch cut Qatar by one notch to AA-minus with a negative outlook close on the heels of two other major rating agencies, Moody’s and Standard & Poor’s, which assess Qatar at the same level and also have negative outlooks for it.
The New York-based rating firm said in a statement that even before the sanctions, Qatar had shrunk its capital spending plans for 2014-2024 to $130 billion from $180 billion in response to low oil and gas prices.
Outflows are likely to slow in coming months because a large proportion of deposits from the Gulf Cooperation Council countries sanctioning Qatar have already been withdrawn, Fitch analysts Krisjanis Krustins and Jan Friederich said.
“Much non-GCC external funding is being rolled over at a higher cost, but the escalation of tensions in the region could see it flee.”
Fitch predicted Qatar’s economic growth would slow to 2 per cent in 2017 and 1.3 per cent next year, from 2.2 per cent in 2016 – forecasts that are considerably more bearish than those of many private economists
“International mediation efforts are still ongoing but are not showing significant progress. In our view, the negotiating positions of Qatar and the boycotting countries remain far apart,” Fitch analysts said.
Saudi Arabia, the UAE, Bahrain and Egypt cut ties with Qatar on June 5, accusing it of backing terrorism. They imposed sanctions closing Qatar’s only land border, with Saudi Arabia, and disrupted its maritime shipping routes by ending its use of Dubai as a trans-shipment hub.
The rating agency said sanctions would hurt Qatar’s tourism and transport sectors in particular. Fitch estimated that Qatar Airways had lost about 10 per cent of its passenger flow. A prolonged rupture in the GCC could undermine the prospects for many of Qatar’s private sector investments, it warned.
According economists, Qatar’s economy will expand this year at the slowest pace since 1995. The country’s foreign deposits fell almost eight per cent in July, according to central bank figures, and the nation is telling its banks to go to international investors for funding instead of relying on the state, according to people familiar with the matter. Qatar is spending billions of dollars preparing to host the soccer World Cup and turn Doha, the capital, into a regional hub.