Qatar has been able to weather the political and economic blockade put in place by neighbouring states, including Saudi Arabia and the United Arab Emirates, in June 2017 with surprising ease by building up new trade routes and increasing its independence. However, the coronavirus pandemic, coupled with the global drop in oil prices, is likely to have a far more significant impact on the Qatari economy in the short term.
“Qatar learnt lessons from the 2008 financial crisis. It gave us the impetus to grow our self-reliance and the blockade has made Qatar even more self-reliant and has supported diversification,” says Dr R Seetharaman, chief executive of Doha Bank, one of Qatar’s largest lenders.
However, he describes the current pandemic as “an economic crisis [and] human catastrophe, and the overall paralysis [is something] we’ve never seen in our lifetime”. Even so, Qatar’s economic fundamentals are strong, he says, with the country’s external asset position and reserves valued at double its gross domestic product (GDP).
Economic slowing
Qatar, which has a population of just under three million, is in a strong fiscal position to withstand the economic impacts of the coronavirus pandemic. The country is one of the richest in the world on a per-capita basis, with its sovereign wealth fund, the Qatar Investment Authority, managing more than $300bn in assets, making it one of the world’s largest sovereign wealth funds.
In recent years Qatar’s private sector has also been expanding, partly aided by strong domestic spending in the lead up to the country hosting the 2022 FIFA World Cup. The country has also invested in major infrastructure projects, including stadiums, transportation and tourism infrastructure. In late 2019, the first phase of Doha’s new driverless metro system was completed.
With many of those projects finished or nearing completion, however, there could be a significant reduction in government spending on infrastructure in the next few years, which is likely to have a negative impact on the private sector. For the moment, it is the coronavirus pandemic that is acting as a brake on the economy, though many believe the overall threat to the Qatari economy is limited. “While the impact of the Covid-19 disease on the global markets is still uncertain, Qatar’s economy is well positioned to weather the storm,” says Abdulla Mubarak Al-Khalifa, group CEO of Qatar National Bank.
Even so, in late March 2020, Fitch Ratings put Qatar’s real GDP growth in 2020 at an estimated -2%, following estimated growth of 0.6% in 2019.
“The hit to domestic demand from stay-at-home measures is set to have shared negative implications for the Gulf Co-operation Council’s non-oil sectors,” says Carla Slim, a Dubai-based economist at Standard Chartered. “In Qatar’s case, the decline in global tourist flows is set to weigh further on the non-oil economy, which slowed to circa 1% in 2019. The hospitality sector – accommodation and food services – will likely contract in the first half of 2020, after posting 12% growth in 2019.”
Ms Slim says that liquidity in Qatar is set to tighten in 2020, albeit from a solid base, following significant improvement since the diplomatic dispute. “We expect small fiscal and current account deficits of 1.9% and 0.5% of GDP, following about two years of surpluses which helped rebuild foreign exchange reserves, up by more than one third since 2017,” she says.
Oil and gas income
As the world’s fifth-largest gas producer and largest liquefied natural gas (LNG) exporter, Qatar’s oil and gas sector is a critical source of state revenue, contributing a third of the country’s nominal GDP in 2019. The rapid decline in oil prices since March 2020 is expected to have a strong impact on public revenue.
Even so, Jason Tuvey, senior emerging markets economist at Capital Economics, says: “Qatar should be able to weather a period of low oil prices for some time. Budget and current account deficits can be easily financed from the country’s foreign exchange savings for many years and a devaluation will be avoided. That said, the government will need to keep fiscal policy tight and that means, even once the coronavirus crisis has passed, the recovery is likely to be slow.”
In the meantime, the country can comfortably raise money to see it through leaner times. On April 7, Qatar sold $10bn in bonds, becoming the first Gulf state to raise cash via the debt market since the dual challenges of coronavirus and low oil prices began. The sale attracted around $45bn of orders.
The country is also pushing ahead with plans to expand natural gas production by more than 40% by 2024, while also investing significantly in renewables. In January, it signed a deal for the construction of the Al-Kharsaah solar plant, an 800-megawatt (MW) facility that is expected to meet around 10% of the country’s peak electricity needs.
The $500m project is being developed by a consortium comprising Marubeni from Japan and France’s Total, with the first phase, representing 350MW, set to be connected to the country’s power grid in early 2021, with the rest to follow by early 2022. The project will enable Qatar to export more of its gas, increasing revenue opportunities. Saad Sherida Al-Kaabi, minister of state for energy affairs, described it as the “first of its kind in the state of Qatar” at a press conference at the launch.
SME support
While the 2022 World Cup has been the major driver of recent private sector growth, Qatar, in common with its Gulf neighbours, is keen to develop its small and medium-sized enterprise (SME) sector as a key driver of economic diversification as it tries to move away from an over-reliance on revenue from hydrocarbons.
As such, in the current crisis banks have been encouraged to extend grace periods for private sector loans to six months, while SMEs and the tourism and logistics sectors have been exempt from custom duties for the same period of time.
In mid March, Qatar unveiled a QR75bn ($20.5bn) stimulus package to provide relief to the country’s private sector. Shortly afterwards, Qatar Development Bank started extending support to SMEs, as part of the government’s programme.
“The stimulus package will go some way to supporting the economy, but much of it consists of loan repayment moratoriums rather than direct fiscal support – a reflection of the constraints the government is under due to the collapse in oil prices,” says Capital Economics’ Mr Tuvey.
Tensions subsiding
Tensions between Qatar and its neighbours – which peaked in 2017 at the time the blockade was announced – have gradually been improving. In December, Saudi Arabia, the UAE and Bahrain participated in a football tournament in Qatar, which was seen as a symbolic step in international relations.
Qatar has also taken part in ministerial-level meetings in the region with some of its Gulf state counterparts. In February, Saudi Arabia, Bahrain and Egypt moved to restore mail service to Qatar, in a further positive sign for regional stability and economic growth.
“We don't talk about the blockade any more, to be honest,” says Doha Bank’s Mr Seetharaman. “It’s been going on for three years; any damage is sustainable. Political tension I can’t comment on, but in terms of economics or banking, our model has proved to be resilient.”
However, despite the easing of tensions, there are lingering issues related to the blockade. In April 2019, Qatar filed lawsuits in London and New York against three banks, Luxembourg-based Banque Havilland, First Abu Dhabi Bank and Samba Bank from Saudi Arabia, which it accused of trying to manipulate its currency and bond markets in late 2017.
Building for the future
Beyond the immediacy of the pandemic, efforts are continuing in Qatar to bring in more foreign investors and international companies.
It has been reported that the Qatari government is planning to extend the jurisdiction of the Qatar International Court and Dispute Resolution Centre, which oversees Qatar Financial Centre, to other such zones in the country, likely including the Qatar Free Zones Authority, Qatar Media City, and Qatar Science and Technology Park. The move is aimed at offering the kinds of assurances necessary in cases of legal disputes needed to reassure would-be foreign investors.
In October 2019, the World Bank listed Qatar among the world’s top 20 countries in terms of improvements in ease of doing business. In particular, it highlighted the creation of a one-stop shop for land registration and the speeding up of the process to obtain an electricity connection.
Even so, foreign direct investment (FDI) into Qatar is far lower than in some of its neighbours, and the country has been noticeably impacted by the ongoing blockade. FDI inflows of $986m in 2017 turned into an outflow of $2.2bn in 2018, according to United Nation figures, and the coronavirus pandemic is unlikely to help in the near future.
Still, despite the economic challenges now hitting the world, Qatar appears to be financially well placed to both weather the current crisis and grow in the long term.
