Qatar’s debt rise and the riyal reaches its lowest level in 27 years , according to data from the IHS Markit research company seen by CNN. Experts say the rise is a direct result of a crisis in which several Arab countries cut off diplomatic and economic ties with Qatar.
On Monday, the country’s 5-year credit risk swap contract rose four basis points from last Friday’s level to 112.94 points, bringing the current level to just 10 basis points from the 120-point high on 14 June 2016.
“The rise in the costs of securing Qatari sovereign debt is a direct result of the diplomatic crisis, which is the worst political crisis in the country since independence,” said Francisco Tang Postelos, an economist at Britain-based research firm IHS Markit.
Saudi Arabia, the United Arab Emirates, Bahrain and Egypt have severed diplomatic ties with Qatar after being accused of “supporting and funding terrorism.” Doha denies this. Riyadh and Abu Dhabi closed all sea, air and land ports to the movement coming from and leaving for Qatar. And departure.
“The investor believes that the ability of Qatari institutions to meet their loans has increased because of the crack, and as a result, some investors will demand higher returns on their investments, while others prefer not to invest in Qatar,” said Postelos. ”
“Investors will leave Qatar if the group of Saudi-led countries does not reduce sanctions on Qatar, which will lead to a sharp decline in foreign investment in the country,” Postilos said.
Tang Postelos said that other economic indicators were affected by the current crisis, pointing out that the Qatari riyal was also affected by the political rift. “Since June 1, 1980, the exchange rate has remained below 3.65 riyals per dollar, but since the beginning of the diplomatic rift, the exchange rate has been above 3.65 in 12 days and the lowest level on June 22, The benchmark index on average is 3.6752, the lowest level in more than 27 years. ”
“While we still need to wait until the report is released in early July to see the real impact on inflation and trade, we expect inflation to rise and a lower surplus as imports bill increases,” the economist said.
Qatar’s economy in the face of the crisis
Tang said that Qatar has taken a pragmatic approach to the crisis, rather than following what he called a “retaliatory approach,” referring to its continued supply of gas to the UAE and allowing citizens of Saudi Arabia, the UAE, Bahrain and Egypt to stay in Qatar and call for a diplomatic solution.
He felt that the Qatari Government was aware that a more confrontational approach could lead to the complete isolation of the State and the loss of support from the West. As a result, Tang Postelos does not believe the hydrocarbon sector will be affected unless Arab countries impose stricter restrictions and stop buying gas from Qatar.
But with Qatar-based companies banned from trading with the four Arab countries, the non-hydrocarbon sector is expected to slow down as political row continues.
The economist pointed to a number of facts that work for Qatar, including that the state is one of the fastest growing economies in the past 20 years, which has one of the highest per capita GDP ratios. The $ 33.4 billion foreign central bank and the liquid assets of the country’s sovereign wealth fund, the Qatar Investment Authority, which amounts to more than $ 200 billion, which the British research firm predicted would be used by Doha to mitigate the adverse winds of the political crisis.
As a result, the research firm believes that the government will continue to invest in the short term as it has before. However, Tang Postelos warned that if the political rift continues throughout 2018, economic growth will slow sharply as the country tries to avoid depleting its foreign assets.