CAIRO – 5 August 2017: Two busy-schedule months for Arab foreign ministers passed, however, the political rift between four Arab states, including Saudi Arabia and Egypt, and Qatar is still ongoing, imposing economic pressures on Doha, which still has ambitions to conquer the crisis.
The first concern of economic analysts was the ability of the Qatari banking system to maintain solid operations, despite being heavily dependent on foreign funds.
Over fears about a potential outflow of external funding from Qatari banks, global credit rating agency Standard and Poor’s lowered in June Qatar's long-term rating from 'AA' to 'AA-'. Other rating firms Moody’s and Fitch also voiced concerns about Doha’s credit ability.
Economic challenges faced by the small-sized Gulf state kept growing over June and July as the sea, land and air boycott influenced investors’ appetite and currency value.
Imports hit as isolation continues
Sanctions imposed by three other Gulf states and Egypt affected Qatar's imports as the isolation forced the country to look for new routes, despite being more expensive, to secure its needs of food, building materials and equipment, which it uses for World Cup 2022.
As a result, imports declined 40 percent in June, while exports maintained stability thanks to its vital shipments of liquefied natural gas (LNG), official data showed on Sunday.
Imports in June registered QAR 5.9 billion ($1.6 billion,) which is a 38 percent fall on a month-on-month level. Meanwhile, total exports amounted to QAR 18.4 billion in June, marking a 5.4 percent increase compared to the corresponding period last month. But it slumped 10 percent from the previous month.
Qatari imports were majorly affected by trade boycott from neighboring countries, as United Arab Emirates’ exports to Doha slumped 64.5 percent month-on-month in June.
Foreign currency, banks feel the suffer
Qatar’s net international reserves declined 30 percent in June to $24 billion, according to the central bank figures.
More pressure on the foreign reserves witnessed as governor of the central bank Sheikh Abdullah bin Saud Al-Thani said in July that the central bank has noticed fund outflows from some non-residents, but he said the amounts were not particularly significant.
Deposits of non-resident of Qatar in 18 banks dropped 7.6 percent to QAR 170.6 billion ($47 billion) in June from a month earlier, according to the Qatar Central Bank.
These actions have shaped burdens for the Qatari banking system. In late July, six Qatari banks were given negative outlook on potential risks by international credit rating agency CI Ratings.
The six banks were the Qatar National Bank (QNB), Ahli Bank of Qatar, The Commercial Bank, Doha Bank, Qatar Islamic Bank and Qatar International Islamic Bank (QIIB). In case the crisis is prolonged, higher funding costs will likely occur as a result of higher risks and lower cross border funding from Qatari banks, the Cyprus-based think-tank said.
The move was anticipated as one month after the diplomatic rift, Moody’s Investors Service changed from stable to negative, while affirming their long-term ratings.
“The rating action reflects Moody's expectations that a prolongation of the current dispute could lead to some outflow of external funding, which would reduce the banks' liquidity buffers. Domestic funding sources remain tight due to current oil prices,” the rating agency said.
Qatari riyal as an ‘undesired’ currency
As the crisis seemed to take more time after it entered its second month in July, UK’s Lloyds Banking Group, Barclays, Royal Bank of Scotland, Thomas Exchange Global, Travelex, all reported to have halted dealing with Qatari riyal for a short period of time.
The issue emerged Wednesday when Qatari nationals, who traveled to Europe, the United States and Asia reported inability to exchange the Qatari riyal abroad.
Some banks in the U.S., India, Sri Lanka and Pakistan were reported as well to have stopped trading with the local Qatari currency.
Shortly after, exchange offices in Saudi Arabia have stopped dealing with the Qatari riyal, considering their stock of the currency as “useless,” Adel al-Maltany, chief of the exchange traders division in Mecca told local media in early July.
Banks and financial institutions said that their action is fueled by the market rejection of buying and selling the Qatari currency.
This has affected the Qatari riyal exchange rate, which has seen fluctuations over the last two months, falling from QAR 3.6 per $1 to QAR 3.8 in the first month, to pick up again to the normal rate in the second month.
But Qatari analysts think the pressure is bearable. Qatari central banker Khalid Al-khater told Reuters in a July 26 interview that the riyal offshore markets are not “that significant.” “They should not be a source of much worry, but only to the extent that they can affect the spot market," he said.
Investment appetite influenced
While Qatar is firm about overcoming the negative influence of the sanctions, with the central bank stating that it holds $340 billion in reserves that could help the Gulf country to weather the isolation, Saudi media reported that 388 Saudi companies operating in Qatar have quit from the peninsular country.
International investors still have mixed views on Qatar. Reuters poll conducted in the last week of July showed that 23 percent of fund managers are looking to raise their equities in Qatar, but the same percentage expected to reduce their fund allocations for Doha.
Gulf funds were heavy net sellers of stocks in the Qatar Exchange over the past two months; meanwhile, non-Arab foreign investors have been net buyers of stocks, while Gulf investors have continued to cut holdings in Qatar, according to Reuters.
The world’s LNG largest exporter is still pursuing measures to offset negative impact of the sanctions imposed on it, resorting to filing complaints to the World Trade Organization (WTO). On the other side, the quartet is still holding onto their demands to ease crisis with Qatar.
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