Qatar’s dollar peg is expected to hold as the Qatar Central Bank has large foreign exchange (FX) reserves to support the currency, shows a recent economic update by credit insurer Euler Hermes.

The currency peg (at QR3.64 to the dollar) has ensured “relative price stability” since 2010, Euler Hermes noted. Since September 2018, Qatar has experienced deflation (-0.7% on average in 2019) amid a "weak economic performance and declining housing market," according to the report.

“As both are expected to improve in 2020-2021, average annual headline inflation is forecast to increase to +0.5% in 2020 and +1.7% in 2021,” Euler Hermes said.

After 16 years of continued large surpluses, “persistent” low oil and gas prices from mid-2014 to 2017 pushed the annual fiscal account into deficit in 2016-2017, it said.

As the oil price recovered in 2018 – to an average $72 for a barrel (for benchmark Brent), well above Qatar’s fiscal breakeven point estimated at $60 – the fiscal account moved back into a surplus of +5.3% of GDP, according to the International Monetary Fund.

“As the average oil price fell to $64/b in 2019 and is forecast to remain around that level in 2020-2021, we expect smaller surpluses of about +1.5% of GDP in these years,” Euler Hermes noted.

Meanwhile, public debt has risen from 25% of GDP in 2014 to more than 50% in 2019 and is forecast to remain above that threshold in 2020-2021. Qatar will remain a large net external creditor, thanks to the huge foreign-asset position in the Qatar Investment Authority (currently estimated at $328bn).

In line with the fiscal account, the current account shifted into a deficit in 2016 (-5.5% of GDP) after 17 years of continued large surpluses.

However, it “rebounded” to a +3.8% of GDP surplus as early as 2017, which widened to +8.7% in 2018. As a result of much weaker exports, the external surplus narrowed to an estimated +3% of GDP in 2019 and is forecast to decline further to about +2.5% on average in 2020-2021.

“External debt is relatively high, estimated at around 60% of GDP, incurred by oil and gas investments since the 2000s, but repayment obligations are unlikely to present liquidity problems. The debt service to export earnings ratio stands at a moderate 13% or so.

“Financial resources will remain strong. Combined FX reserves of the central bank and the QIA represent well over 150% of annual GDP and cover more than 50 months of imports,” Euler Hermes said.