Qatar’s non-oil economic growth will slow this year as a result of the country’s economic isolation by its Arabian Gulf neighbours, according to the IMF.
“Non-oil growth is projected to moderate to 4.6 per cent in 2017 from 5.6 per cent in 2016, due to the ongoing fiscal consolidation and trade diversion,” said Mohammed El Qorchi, the leader of an IMF team that visited Doha from August 13-20 to take stock of recent economic developments.
“Over the medium term, non-hydrocarbon GDP growth is expected to reach 4.8 per cent, as structural reforms are implemented," he added.”
Saudi Arabia, the UAE, Bahrain, Egypt and other countries severed diplomatic, economic and transport ties with Qatar on June 5, accusing Doha of supporting terrorism and meddling in their internal affairs. Qatar has denied the charges.
Mr El Qorchi noted the country’s isolation prompted a 40 per cent contraction in imports for June, followed by a slight recovery in July. The country’s efforts to diversify sources of imports and external financing and enhance domestic food processing had subsequently accelerated, he said.
But the standoff between Qatar and its neighbours could seriously harm the country's economy if not resolved soon, said Mr El Qorchi.
"Over the longer term, the diplomatic rift could weaken confidence and reduce investment and growth," he said, adding that it might "possibly" affect other GCC countries as well.
Fitch Ratings last week cut Qatar’s sovereign rating by a notch, saying citing slim prospects of ending the diplomatic and logistical isolation by its neighbours.
Qatar’s headline inflation remains subdued at 0.8 per cent for June, even though transportation (8.9 per cent) and food costs (2 per cent) have edged up, according to the IMF. Delays caused by rerouting trade have raised operational costs for some businesses, the fund noted.
Local banks had come under pressure during the dispute, with some lenders in Saudi Arabia, the UAE and Bahrain cutting their exposure to Qatar.
Foreign deposits dropped the most in two years in June, according to Bloomberg, and Moody’s Investors Service cut its outlook on Qatar’s banking system to negative on weakening operating conditions.
Policymakers mitigated the impact on local lenders’ balance sheets by injecting liquidity and boosting public sector deposits, and Qatari banks remain “sound, with high asset quality and strong capitalisation,” the IMF said.
In line with the rest of the GCC, Qatar plans to introduce VAT next year, which should help to shore up its reserves, the fund noted.