Sanctions to Have Huge Impact on Qatar Economy

Recent diplomatic and economic sanctions on Qatar by a group of states led by Saudi Arabia, the UAE, Bahrain, Egypt, Libya, Yemen and a few other small countries is expected to have severe consequences on Qatar’s economy if the impasse is to continue for a longer period, according to analysts.

The political rift has created much uncertainty and is likely to impact the flow of people, trade and capital which could delay the execution of projects as Qatar prepares to host World Cup 2022, Yahoo reported.

With the crisis getting stretched, analysts fear a prolonged isolation of Qatar’s economy by its neighbors could result in Qatari economy facing sharp decline in growth.

According to the Institute of International Finance, a Washington headquartered global association of the financial services industry, if the current crisis persists for an extended period and ties deteriorate further, Qatar’s GDP growth could decline to 1.2% in 2017 and 2% in 2018, principally due to lower non-hydrocarbon growth impacted by increased uncertainty weighing on investment and a tighter financial environment and perhaps deposit flight which could raise the cost of funds.

Cuts in financial ties and increased counterparty concerns could hinder ease of doing business and trade finance. “In this scenario, lower than expected nonhydrocarbon revenue could widen the fiscal deficit to 7.8% of GDP in 2017. The external current account deficit could remain at around 2% of GDP as the sharp fall in travel and transport related service receipts due the prolonged travel bans of neighbors and airspace closures,” said Boban Markovic, Research Analyst at IIF.

While global credit rating agency Standard & Poor’s has downgraded the sovereign ratings of Qatar and changed the outlook of some of the leading corporate entities with negative implications, other rating agencies have warned of potential rating downgrade and or change in outlook to negative.

S&P was the first to lower its long-term rating on Qatar to AA- from AA and placed the rating on credit watch with negative implications.

“We believe this will exacerbate Qatar’s external vulnerabilities and could put pressure on its economic growth and fiscal metrics,” said S&P’s credit analysts Benjamin Young.

This followed a number of rating related changes by S&P on Qatari banks and corporates ranging from downgrades to placing companies on watch list to changing outlooks from stable to negative.