Qatar’s first current account deficit since 1998 ‘poses little risk’

Qatar's first current account deficit since 1998 ‘poses little risks’ to the country's external balance and currency peg to the dollar, said a senior economist, who noted that the country has ‘enough financial buffers’ to meet its immediate needs.

This year, Qatar will post its ‘first current account deficit’ in almost two decades as hydrocarbon prices remain depressed, shows a new report by BMI Research, a Fitch Group Company.

“We forecast the current account to turn back to surplus from 2017 — as hydrocarbon prices edge higher — but the surplus will average only 1.7% over the next decade, well below its past levels,” BMI Research’s Emerging Markets analyst Olivier Najar told Gulf Times.

Having averaged a staggering surplus of 21.7% of GDP between 1999 and 2014, Qatar's current account balance plunged to 7.3% of GDP in 2015, and BMI Research forecasts it to further drop to -1.6% of GDP in 2016.

He said BMI Research believes that Qatar's first current account deficit since 1998 ‘poses little risks’ to the country's external balance and currency peg.

“Doha has very large foreign reserves available to cover short-term shortages and protect the peg if needed, reinforced by the $256bn held by the country's sovereign wealth fund at the end of 2015. The country therefore has enough financial buffers for immediate needs,” Najar stressed.

With hydrocarbon prices edging higher from 2017, Qatar's external balance will ‘rapidly turn back’ to positive territory, the report said.

Hydrocarbons have accounted for an average of 80% of total Qatari exports for more than a decade. As a result, Qatar's current account has ‘suffered extensively’ from the drop in global hydrocarbon prices that began in the summer of 2014.

According to BMI Research, the foreign currency reserves of the Qatar Central Bank amounted to $36bn in February, enough to cover more than a year of imports.

 “Over the past three months, market sentiment towards the country's external sustainability has improved,” BMI Research said.

The pressure on the Qatari Riyal decreased significantly since January, when Brent crude price traded at a low of $28 for a barrel, compared to $49 on May 25.

The quote on the riyal 12 month forward decreased to 245 forward points on May 25, compared to a high of 449 in early January, BMI Research noted.

Courtesy: gulf-times.com