Qatar Country Risk Report Q2 2016

Qatar Country Risk Report Q2 2016

Core Views Qatar's short-term political risk profile remains among the most stable in the region. Despite enjoying little in the way of democratic freedom, Qataris benefit from massive hydrocarbon wealth, which is spread generously across the country's native population, and enjoy the highest per capita GDP in the world. A small population – and one without much inclination to protest against the government – will keep the country insulated from large-scale public unrest in the immediate term. The performance of the Qatari economy will be more mixed than in recent years, amid the intertwined pressures of the global energy slump and tightening domestic liquidity. We forecast real economic growth of 5.0% this year and 4.8% in 2017, driven mainly by strong growth in the primary and secondary sectors. Lower hydrocarbons prices do not present a significant threat to Qatar's fiscal sustainability. Nevertheless, the government will seek to tighten control over public spending and rationalise Qatar's vast pipeline of infrastructure projects – a trend that will be positive for the economy over the longer run. We expect the Qatari Central Bank to maintain its policy lending rate on hold at 4.50% over the first half of the year, in a continued divergence from the US Federal Reserve's rate hike in December 2015. Deepening liquidity problems mean that more active steps to ease the strain on the domestic banking system are likely, including a cut in the repo rate and a reduction in the required reserve ratio. Qatar's decision to send 1,000 ground troops to Yemen – nearly 10% of its armed forces – marks a decisive milestone in the country's foreign policy. The move aligns Qatar more closely with its Gulf neighbours, but carries domestic risks and comes with little benefit.