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, amidst the intertwined pressures of the global energy slump and tightening domestic liquidity. We forecast real economic growth of 4.4% this year and 4.8% in 2017, driven mainly by strong growth in investments as preparations for the FIFA 2022 World Cup continue.
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% for the coming months, in a continued divergence from the Fed's hiking cycle. 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.
Given the economy's heavy reliance on the hydrocarbon sector, a pronounced global economic downturn - if it were to translate into a sustained drop-off in demand for oil and gas - could impact negatively on our forecasts for Qatar's external account position, budget and growth outlook. That said, we highlight that the country's USD256bn sovereign wealth fund - as well as its continuing ability to tap international debt markets - provides the economy with significant bulwarks against these risks.
The construction sector remains exposed to the potential for delays and cost overruns, a factor that is increasing and unlikely to improve over the medium term.
The initiation in May 2015 of Swiss and US investigations into alleged corruption in world's footballing governing body FIFA is once again fuelling uncertainty over Qatar's hosting of the 2022 World Cup. While our baseline scenario assumes that the tournament will go ahead in Qatar as planned, the loss of the rights to the event would hit growth on several fronts, and deal a significant blow to the country's global soft power ambitions. That said, such a scenario would hardly be the end of the road for Qatar's impressive growth story.
|Real GDP growth, % y-o-y||6.2||5.5||4.4||4.8|
|Nominal GDP, USDbn||211.7||155.4||155.7||188.3|
|Consumer price inflation, % y-o-y, eop||2.7||2.7||3.0||3.0|
|Exchange rate QAR/USD, eop||3.64||3.64||3.64||3.64|
|Budget balance, % of GDP||16.0||3.1||-3.6||0.8|
|Current account balance, % of GDP||23.5||8.8||-1.9||1.7|
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