(MENAFN- Gulf Times)
Qatar abandoning the US dollar peg is 'highly unlikely, NBK Economic Research noted, and said the 'authorities are steadfast in their commitment to the peg with more than enough resources to defend it.
The 'riyal is under pressure in the forwards market, it said and noted that with 'speculation that a financial boycott by Qatar's neighbours would lead to financial outflows and tighter credit conditions and force the Qataris to abandon the US dollar peg. 'We view this as highly unlikely, NBK Economic Research said.
The authorities, with $335bn in sovereign wealth fund assets with the Qatar Investment Authority (QIA), as well as $34bn in central bank international reserves, would have ample financial resources to weather a financial dislocation of this sort (asset coverage of Qatari banks' GCC exposure would stand at 14 times).
'Furthermore, the political and economic costs of a de-peg would dwarf any potential benefit to Qatar, NBK Economic Research said.
According to NBK Economic Research, Qatar sold more than $17bn in bonds and sukuk in 2016, $14.5bn of which was raised from international investors. This included a $9bn triple-tranche dollar-denominated international bond last May.
Consequently, central government debt (gross) increased significantly in 2016 to 67.2% of GDP from 44.6% in 2015. Recourse to the debt markets has helped Qatar's finances and injected much-needed liquidity into the banking system.
Increasing debt issuance has not stemmed the decline in the country's international reserves, however, which fell to $34.4bn in April, a year-on-year (y-o-y) decline of 3.6%. April's figure also represents a fall of $11.6bn, or 25%, from the country's all-time high reserve level of $46bn in November 2014. Import cover is still around 6.6 months, however, which is more than twice the three months recommended by the IMF for fixed exchange-rate regimes.
NBK expects Qatar's headline growth to accelerate slightly this year and in 2018 to 2.5% and 3.1% respectively, thanks to gains in LNG, natural gas and condensates output on the hydrocarbon side. Crude output is expected to average 30,000bpd less in 2017 as per Qatar's obligations under the terms of last November's Opec production cut agreement.
Continued growth in construction, services and transportation should contribute on the non-hydrocarbon side. The government's $200bn public infrastructure programme, which it is executing as part of its Vision 2030 diversification strategy and FIFA World Cup 2022 plan, will underpin growth in this sector, even while the government continues to keep a tight rein on current expenditures, the report noted.
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