Business as usual for Qatar — but at what cost?

DUBAI: On the face of it, it looks like business as usual for Qatar despite the travel and economic boycott imposed by some of its Arab neighbors because of its alleged support for terrorism and close relationship with Iran.
The country, which has faced sanctions from Saudi Arabia, the UAE, Bahrain and Egypt since June, announced a budget for 2018 that projects a marginal fall in deficit, from a forecast 28.4 billion riyals ($7.8 billion) this year to 28.1 billion riyals next.
Government expenditure is expected to rise 2.4 percent, to 203.2 billion riyals, but revenue will also increase slightly, by 2.9 percent to 175.1 billion riyals, driven by non-energy income, the government said. The resulting deficit will be financed largely through debt sales, Finance Minister Ali Sharif Al-Emadi said.
Some might even find some cause for relief in the projected figures, as ruler Sheikh Tamim bin Hamad Al-Thani did when he stated that the country had absorbed the summer shock of the sanctions and was now moving to speed up economic and legal reforms that would help the economy grow.
Gross domestic product is forecast to grow between 2.5 percent and 3 percent in 2018, the finance minister said recently.
Economist Nasser Saidi called the budget “conservative and realistic,” noting that the forecasts are made on the assumption of $45 per barrel of oil, much lower than current prices.
He added that the level of support given to markets and the banking sector this year would not need to be repeated next, and that the “adjustment to logistics” — disruption to trade, travel and tourism — has already been borne in 2017.
The Qatar economy seems to have steadied after the summer shock, but that has come at a price. Qatar has big financial reserves in its banking system and sovereign wealth funds, which have been drawn down as the confrontation became prolonged. Moody’s, the ratings agency, said that the country injected $40 billion into the economy out of total reserves of $340 billion in the first two months of the confrontation.
The country lost substantial chunks of foreign financial business after June, and there is no sign of it coming back any time soon. Fitch, another ratings agency, said overseas customer deposits had fallen from 25 percent to around 18 percent of all bank deposits in the first two months.
The country is having to spend from its own resources to make up for the uncertainties of the global investment community about the future.
Levels of foreign reserves, which dropped sharply immediately after the confrontation began, have been volatile ever since. Reserves and liquidity fell significantly in September but recovered some ground according to the most recent figures, for October. However, some economists were confused by what looked like an accounting change.
The global financial community is still negative about the country’s creditworthiness. Moody’s said that Qatar faces large economic, social and financial costs from the dispute. Standard & Poor’s recently reiterated its negative outlook for the economy, expecting the sanctions to slow economic growth and hamper its fiscal performance.
Other experts say that the situation could get worse, pointing out that Saudi Arabia and the UAE have not yet used the full range of financial sanctions against Qatar, and that there are still considerable and unpredictable items of expenditure looming next year, like the cost of the ongoing preparations for the 2022 FIFA World Cup. “(Qatar) would be substantially better off if the sanctions were removed,” said Saidi.