Qatar, whose external financial position showed marked improvement in 2018 despite the ongoing regional tension and growing emerging market (EM) stress, can not only withstand crises domestically but also assert its influence on the broader region, according to a Washington-based economic think-tank.
Although a trade and diplomatic blockade by the Saudi-led quartet is approaching its second year and showing no signs of abating, the Institute of International Finance (IIF) said economic activity has continued to pick up.
"With the resumption of non-resident capital inflows in multiple forms, Qatar’s external position showed marked improvement in 2018 even in the face of ongoing regional tension and growing emerging market stress," it said.
Highlighting that non-resident capital inflows have been very strong, in stark contrast to other EMs, the IIF said Qatar issued a $12bn triple-tranche Eurobond in April 2018 at modest premiums over the US Treasuries, attracting "significant" interest from foreign investors even in the face of an offering of similar size from Saudi Arabia.
Finding that Qatar Stock Exchange index was one of the top performers worldwide in 2018, returning approximately 20% even as many global benchmarks declined outright; the IIF said non-resident inflows surpassed $26bn in the first three quarters of the year, with both non-resident deposits and bank loans picking up.
"The rift underscores the importance of adhering to a long-term commitment to structural reform and diversification even as oil prices remain high," according to it.
Qatar’s decisions to ramp up its investments in Turkey and purchase $500mn in Lebanese Eurobonds demonstrate its strength and commitment to pursuing an independent diplomatic path; "not only can it withstand crisis domestically, but also assert its influence on the broader region," the IIF said.
On the domestic front, the IIF is of the view that growth is likely to rise from 1.6% in 2017 to 1.8% in 2018, then decline modestly in 2019 reflecting trends in non-hydrocarbon activity.
"Construction, funded through years of accumulated oil and gas proceeds, is likely to remain the main driver over the medium term," it said.
Hydrocarbon production is set to remain stable this year after several years of contraction, and then rise substantially over the medium term, with a commitment to increase the LNG (liquefied natural gas) processing and export capacity from 77mn tonnes to 110mn tonnes over the next five to seven years.
"The expansion is in its initial stages, but seems plausible," IIF stressed.
Even without a rise in export volumes, the rise in hydrocarbon prices in 2018 has caused the country’s trade surplus to widen significantly. Qatar remains the world’s largest exporter of LNG, with particularly strong demand from East Asian countries.
The fiscal balance is on track to return to a sizable surplus in 2018, bolstered by higher oil prices, and remain in surplus due to a pickup in non-hydrocarbon revenues, the IIF said, adding the establishment of a new tax authority should improve tax collection.
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