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Qatar Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

Qatar’s short-term political risk profile remains among the most stable in the region. Despite enjoying little in the way of democratic freedom, Qataris benefit from massive hydrocarbon wealth which is spread generously across the country’s native population and enjoy the highest per capita GDP in the world. A small population – and one without much inclination to protest against the government – will keep the country insulated from large-scale public unrest in the immediate term. The performance of the Qatari economy will be more mixed than in recent years, amidst the intertwined pressures of the global energy slump and tightening domestic liquidity. We forecast real economic growth of 3.1% this year and 3.6% in 2017, driven mainly by strong growth in investments as preparations for the FIFA 2022 World Cup continue. Lower hydrocarbons prices do not present a significant threat to Qatar’s fiscal sustainability. Nevertheless, the government will seek to tighten control over public spending and rationalise Qatar’s vast pipeline of infrastructure projects – a trend that will be positive for the economy over the longer run. We expect the Qatari Central Bank to maintain its policy lending rate on hold at 4.50% for the coming months, in a continued divergence from the Fed’s hiking cycle. Deepening liquidity problems mean that more active steps to ease the strain on the domestic banking system are likely, including a cut in the repo rate and a reduction in the required reserve ratio. Qatar’s decision to send 1,000 ground troops to Yemen – nearly 10% of its armed forces – marks a decisive milestone in the country’s foreign policy. The move aligns Qatar more closely with its Gulf neighbours, but carries domestic risks and comes with little benefit.

Table Of Contents

Qatar Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Economy Supported By Government Investment And Oil Price Recovery...............................................................................8
Qatar is past the worst of the economic slowdown brought about by low oil prices. Oil has recovered from its January 2016 low and will
edge higher over the coming quarters, supporting improvements in business confidence. Overall, the country will continue to post higher
growth rates than its neighbours on the back of large government investments.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS....................................................................................................................................................................10
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Fiscal Policy And Public Debt Outlook.................................................................................................................. 11
Public Debt To Decrease From 2017, As Fiscal Balance Improves..........................................................................................11
On the back of increasing hydrocarbon revenues and moderate fiscal consolidation, Qatar's budget deficit will narrow significantly in 2017
and return to surplus in 2018. The Qatari government will continue issuing debt to cover its deficit, with the pace of debt issuance set to
slow significantly in 2017, following a very active 2016, and as interest rates increase on the back of tightening US monetary policy.
Structural Fiscal Position........................................................................................................................................ 13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, FY2014/2015.....................................................................................................13
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................13
External Trade And Investment Outlook................................................................................................................ 14
Current Account Surpluses To Return In 2017...........................................................................................................................14
Qatar will post its first current account deficit in 17 years in 2016, as the country's export revenues are hit by low hydrocarbon prices.
This will be short-lived, and the country's external balance will return to positive territory from 2017, on the back of higher hydrocarbon
revenues. Meanwhile, Qatar's large foreign reserves will allow it to weather the 2016 deficit unscathed.
Outlook On External Position.................................................................................................................................. 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................16
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................16
TABLE: BREAKDOWN OF IMPORTS IN 2015.......................................................................................................................................................16
TABLE: BREAKDOWN OF EXPORTS IN 2015.......................................................................................................................................................16
Monetary Policy........................................................................................................................................................ 17
Hiking Rates In 2017 As Macroeconomic Situation Improves..................................................................................................17
The Qatar Central Bank will follow the US Federal Reserve and hike its policy rate by 25 basis points in 2017, showing its commitment
to maintaining the rial's peg to the US dollar. The hike will have little impact on inflation, and the latter will rise only moderately over the
coming quarters, as commodity prices edge up while the government pushes ahead with subsidy cuts.
Monetary Policy Framework.................................................................................................................................... 18
Chapter 2: 10-Year Forecast................................................................................................................... 19
The Qatari Economy To 2025.................................................................................................................................. 19
Solid Long-Term Growth Prospects............................................................................................................................................19
We hold a positive outlook on Qatar's economic growth trajectory over the coming decade, with large investments in infrastructure
to prepare for the FIFA World Cup supporting economic activity through to 2022. Meanwhile, hydrocarbon production will stagnate,
preventing headline real growth to reach the 16.3% average recorded between 2004 and 2011.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................19
Chapter 3: Political Outlook................................................................................................................... 21
SWOT Analysis......................................................................................................................................................... 21
BMI Political Risk Index........................................................................................................................................... 21
Domestic Politics..................................................................................................................................................... 22
More International Criticism To Come, But World Cup Not At Risk.........................................................................................22
Qatar will face increasing international criticism over the coming years, as reports of workers' abuse tarnish the emirate's reputation.
Nevertheless, the organisation of the 2022 football World Cup in the country is not at risk, ensuring that major infrastructure projects
remain on track.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................22
TABLE: SELECTED INFRASTRUCTURE PROJECTS...........................................................................................................................................23
TABLE: MIGRANT LABOUR FORCE RELATED PROJECTS................................................................................................................................23
Long-Term Political Outlook................................................................................................................................... 24
Limited Challenges For The Coming Decade.............................................................................................................................24
We find it hard to argue that political instability could become a core scenario in Qatar. Nevertheless, with the government playing
the role of conflict mediator in one of the hottest international conflict flashpoints in the world, in addition to having a growing young
population and increasing number of expatriates, Qatar will not be immune to external and internal shocks in the long run.
Chapter 4: Operational Risk................................................................................................................... 27
SWOT Analysis......................................................................................................................................................... 27
Operational Risk Index............................................................................................................................................ 27
Operational Risk....................................................................................................................................................... 28
TABLE: OPERATIONAL RISK.................................................................................................................................................................................28
Market Size And Utilities.......................................................................................................................................... 29
TABLE: MIDDLE EAST AND NORTH AFRICA - MARKET SIZE AND UTILITIES RISK........................................................................................ 30
Labour Costs............................................................................................................................................................ 32
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE............................................................................................... 33
Chapter 5: BMI Global Macro Outlook................................................................................................... 35
Global Macro Outlook.............................................................................................................................................. 35
EMs Past The Worst, But Structural Problems Persist.............................................................................................................35
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................35
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................36
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %................................................................................................................................. 37
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................39

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