Qatar’s economy faces more pressures as boycott grows

CAIRO – 2 July 2017: As deadline for Doha to meet demands made by Egypt, Saudi Arabia, UAE and Bahrain, approaches, Qatar’s currency, stock market and equity are declining on market panic.

The Qatari riyal is currently facing a devaluation threat on what is seemed like an economic boycott on Qatar from British banks and international financial institutions.
Last week, the riyal has significantly dropped to QAR 3.788, down from a normal level of QAR 3.64 per $1.

Economic challenges faced by the small-sized Gulf state grow as the sea, land and air boycott influenced investors and trade flows.

Pressure from UK money traders

UK’s Lloyds Banking Group, Barclays, Royal Bank of Scotland, Thomas Exchange Global, Travelex all reported to have halted dealing with Qatari riyal over two days, imposing more pressure on the currency.

Banks and financial institutions said that their action is fueled by the market rejection of buying and selling the Qatari currency.

The move came when the Qatari riyal is already striving to keep stability. "The Qatari riyal was trading on the futures market at an annual low, and they have recently been placed on a negative credit watch because portfolio investment funds have left the country so quickly," Omar Mohammed, agent at Imperial FX told Doha News Friday.

Some banks in the US, India, Sri Lanka and Pakistan were reported as well to have stopped trading with the local Qatari currency.

The issue emerged Wednesday when Qatari nationals, who traveled to Europe, the United States and Asia reported inability to exchange the Qatari riyal abroad.

Despite the challenges, Qatar still thinks it is able to overcome the boycott as Doha’s central bank told Financial Times the currency can resist the devaluation.

But analysts think differently. A potential devaluation of the Qatari riyal is predicted to be devaluated 20 percent in case officials did not respond to economic hurdles that caused the currency’s downfall, global head of strategy at London’s ING Chris Turner said in June.

Stock market falls as deadline looms

Set at Sunday night, Qatar has to respond to 13 demands made by Arab states that have severed ties with Doha over allegations of links to terrorism.

The demands include closing a Turkish military base in Qatar and shutting down the Al Jazeera pan-Arab television network.

As Doha's Minister of Foreign Affairs Sheikh Mohammed bin Abdulrahman al-Thani said the demands are “designed to be rejected”, Qatar’s stock market fell during early Sunday trading session fell 3.1 percent on $1 billion market loss of the listed 18 companies.

Investors in Qatar’s stock market are expected to be cautious until the country makes its mind about demands of six Arab countries.

“In normal circumstances, it would be a great chance to buy on the dip, But with all the uncertainty happening with the Qatar situation at the moment, I think investors will stay skeptical,” Nabil Al Rantisi, the managing director of Abu Dhabi-based Mena Corp. Financial Services told Bloomberg television Sunday.

More economy, funding challenges

The economic challenges for Qatar came as Arab countries, including Egypt and Saudi Arabia decided on June 5 to cut diplomatic ties with Qatar.

Arabs boycott on Doha pushed its equity market down nine percent, London-based think tank Capital Economics said Saturday.

While yields on Qatar’s 2026 dollar bond have hiked 50 basis points, the effect of the diplomatic rift with Qatar on the wider economy is still limited, Capital Economics added.

Also, international rating agencies have put Qatar on negative watch. Two days after the cut in ties, global credit rating agency Standard and Poor’s lowered Qatar's long-term rating from 'AA' to 'AA-' on negative implications of the decision.

Rating agencies Moody’s and Fitch have expressed concern as well. In the second week, Fitch said a downgrade in Qatar’s credit rating is possible over concerns of deepening the crisis.

“While some discussions have taken place to resolve the crisis, it is becoming more likely that the crisis will be sustained and negatively affect Qatar’s economy and its credit metrics,” Fitch Gulf analyst Krisjanis Krustins said in June.

Moreover, Qatar’s tourism is facing challenges in increasing its GDP contribution to 5.2 percent by 2030 from a current level of 4.1 percent. Doha's hotels which would normally be full in the Eid al-Fitr holiday have seen steep falls in their occupancy rates.

A Reuters survey of five major hotels conducted last week found average occupancy was around 57 percent at the start of the Eid festival last Sunday.

Qatar is expected to see more economic challenges in case it rejected 13 demands made by six Arab countries, to lift their diplomatic rift.