Qatar’s financial stability is a resilient model

When I meet people, I am often asked about the current political crisis impacting the GCC and Qatar and I have made an attempt to respond to some of the key questions raised, which are as follows:Q. Could you give an insight into Qatar’s economic fundamentals.Qatar’s economy is strong and diversified and the country is the second biggest exporter of LNG. According to last published data for Qatar, QR164bn is the oil and gas revenues, QR112bn is from investment revenues and QR61bn is from other revenues. The GDP of close to 48% comes from mining and quarrying (mainly hydrocarbon) and remaining from the non-hydrocarbon sector. Qatar’s economy is expected to grow by 3.4% in 2017 and will have a fiscal deficit of 7.7% in the year. The Net Assets + Reserves is 2.5 times of GDP. Qatar Central Bank had $40bn in cash reserves plus gold. In addition, the Qatar Investment Authority has $300bn in reserves. The economic progression is sustainable.Q. What is the impact of the crisis on Qatar’s economy?If we read the underlying statements of Moody’s, it has moved from Aa2 to Aa3. The Aa rating is a worthy credit and the outlook has been put to negative. The S&P has also placed credit watch at ‘AA- ‘ with negative implications. This means the sovereign and institutional cost may go up. Q. How is the financial stability and the Qatar economy is going to be impacted by the current scenario?We have a contingency plan whether it is country or corporate. Plan A v/s Plan B is being looked into. Alternate supply chain has been thought through. Qatar has also been able to obtain food supplies from Iran, Turkey, UK and India. Q. Please give an insight on Qatar’s financial stability.Qatar’s banking assets growth was more than 3% YTD till May 2017. The overall lending growth was more than 4% YTD till May 2017. The government sector lending growth was more than 12% YTD till May 2017. The real estate lending growth was more than 5% YTD till May 2017. The retail lending growth was more than 1% YTD till May 2017. The contract sector lending growth was flat till May 2017. The services sector lending growth was 3% till May 2017. The deposit growth was close to 5% till May 2017. There is nothing that can disturb the financial stability in the medium and long term. Short-term turbulence, yes. Medium and long term, no.Q. How is the crisis going to impact Qatar’s procurement strategy?Qatar will have to diversify sources and means of imports just as it does with its investments and reserves to spread risk and avoid reliance on just a few sources.Q. How is the crisis going to impact inflation?According to IMF April 2017, inflation in 2017 is expected to be above 2.6%. We could see an increase in price of some of the items due to rerouting of supply lines, shipping costs, or price increase from the sources. This is generally a cost push inflation in a possible range of over 1%.Q. How has Qatar managed the current scenario on non-food items and project space?All projects and businesses are running smoothly and will not be affected. Qatar’s 2017 Budget has allocated for sectors such as health, education and infrastructure (QR87.1bn), which is made up nearly 44% of the total expenditure in the 2017 budget. Growth will continue through greater involvement of the private sector. The Qatari businessmen have implemented the plan in a very smooth way, showing ability to manage such sudden crisis. All import process is being run by the private sector. They are now offering initiatives to diversify the economy, and solutions for many possible challenges could emerge. Regarding non-food materials, Qatar has strategic stocks which is enough for one year. However, the country has immediately started to import its needs without using the strategic stocks. Many of the primary construction materials are made in Qatar, and there is enough stored materials to run the projects.* Dr R Seetharaman is Group CEO of Doha Bank.