Qatar’s relatively strong fiscal position, planned infrastructure spending for the 2022 World Cup and ongoing benefits for public sector workers should underpin recovery in the country’s demand growth in 2021, Oxford Economics has said in a report.
Taking note of the weak oil and gas prices, Oxford Economics said “this is being exacerbated sharply this year by the impact of coronavirus.”
In its ‘economic risk evaluation’, the researcher said Qatar's overall economic risk score of 3.8 is low, well below the Mena average of 5.3.
The pace of growth has slowed since 2012, because of the moratorium on North Field gas expansion and then since 2014 because of lower oil prices and associated fiscal austerity. Growth “disappointed” in 2018 despite improved oil prices and turned “negative” in 2019.
Activity may “slide further” as the coronavirus pandemic hits and fiscal policy retrenches amid a decline in revenues, it said.
In terms of market demand, the demand risk score of 4.0 (given by Oxford Economics) is below the Mena average of 5.2, reflecting what it said “Qatar's very high per capita income, large government reserves and lack of overheating.
The sovereign credit risk score under the researcher’s data-driven methodology is 4.9, “significantly higher” than six months ago but “still below” the Mena average of 5.3.
“The low score reflects very high per capita incomes, large government reserves, strong external finances and political stability. While the budget moved into deficit in 2017, this was temporary and returned to surplus in 2018. However, it began to narrow again in 2019 and, given the slump in oil and gas prices, it will move into deficit equal to some 6% of GDP this year,” Oxford Economics said.
Trade credit risk – a measure of private sector repayment risk – remains very low in Qatar by regional standards at 3.0, compared with the regional average of 6.1, it said.
“The main factors underpinning this rating are macroeconomic stability, the credible and well-established exchange rate regime, strong growth, very high GDP per capita and a healthy, well developed banking sector. Low-trending oil prices are weighing on bank liquidity, despite rising exposure to construction and real estate and persistent foreign funding risk,” Oxford Economics noted.
Under the researcher’s methodology, exchange rate risk is now 3.0, up 0.8 from six months ago but well below the Mena average of 4.6.
“The stronger dollar has supported the dollar-pegged Qatari riyal, and there is only a very small chance of de-pegging even if co-ordination over policy with other Gulf countries continues to suffer. The still-low risk score largely reflects the authorities’ long-standing commitment to the dollar peg, as well as large FX reserves,” Oxford Economics said.
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