KUWAIT CITY: RAM Ratings is currently assessing the impact of the current diplomatic row centred on Qatar in the Middle East.
“Although the abruptness and severity of this clash raises uncertainties on how soon the differences can be resolved, we believe that the economic and financial impact on Qatar will be contained in the near term,” the ratings agency said in a report yesterday.
“This is because gas exports have not been curtailed and the supply chain can be adjusted, albeit at a possibly higher cost.”
As the situation is highly fluid, RAM is awaiting guidance from the central banks of the other Gulf Cooperation Council (GCC) member countries on issues pertaining to capital flows, trade finance and how these could affect businesses and a potential capital pullout from Qatar.
Prolonged economic and diplomatic isolation would negatively affect Qatar’s fundamentals and precipitate downward pressures, it added.
At present, Qatar carries a gAA3(pi) rating, with a stable outlook. With the accumulation of substantial reserves in its sovereign wealth fund, estimated at 220 per cent of its GDP as at end-2016, Qatar is essentially in a net-cash position.
“Known for its more assertive stance on foreign policy, Qatar’s rifts with its GCC neighbours have always been a negative rating factor,” highlighted Esther Lai, RAM’s head of sovereign ratings. “Given Kuwait’s present role as a mediator, we believe that the GCC’s long-term interests remain aligned at this juncture.”
As Qatar braces itself for its first fiscal deficit in 15 years, the government pared down recurrent spending and capped the growth of capital expenditure in 2016. Nonetheless, the underperformance of revenue collections led to a fiscal deficit of nine per cent of GDP – worse than RAM’s initial forecast of 7.7 per cent.
“Should funding costs keep rising and exports of liquefied natural gas be disrupted by this crisis, Qatar’s government finances could come under mounting pressure as its fiscal balance may deteriorate to a double-digit deficit.
“Given Qatar’s history of issuing foreign-currency-denominated debts, external financing plays a major role in funding its mega-infrastructure programmes. Qatar’s sovereign debt amounted to approximately 40 per cent of its GDP as at end-2015, and is expected to exceed 50 per cent of GDP from 2017 onwards.
“As at end-April 2017, non-resident deposits in Qatar constituted about a quarter of the total deposits in its commercial banks, compared to eight per cent as at end-December 2014.
“Despite its status as a net-creditor nation, Qatar’s official reserve assets only provided a 1-time cover on its short-term external debts as at end-2015.”
