Previous Quarterly Editions
Expropriation Risk: 38 38 39 40 ▲ Political Violence Risk: 35 35 36 36 ► Terrorism Risk: 5 5 5 5 ► Exchange Transfer and Trade Sanction Risk: 35 35 35 35 ► Sovereign Default Risk: 15 15 15 15 ►
TREND ►
Qatar is gradually returning to the Arab fold, after an Arab ‘quartet’ (comprising Saudi Arabia, the United Arab Emirates or ‘UAE’, Bahrain and Egypt) lifted a nearly four-year boycott against Qatar in January. High-level exchanges between the leaders of Qatar, on one hand, and Egypt and Saudi Arabia on the other have culminated in the mutual appointment of ambassadors for the first time since 2017. The UAE and Bahrain are proceeding with more caution in their reconciliation with Qatar, owing to deeper ideological differences.
Emerging from the boycott with confidence, Qatar has assumed crucial mediating roles in several regional flashpoints including on an eleven-day war between Hamas and Israel in May, ongoing US-Iran tensions and, most recently, Afghanistan -- which fell back into Taliban hands in August. Qatar has embraced this role as a way of building alliances with regional and great powers.
There are both upside and downside risks to the central role Qatar has played in mediating the February 2020 agreement that led to the US withdrawal from Afghanistan. As the blame is shared for the Taliban takeover, fingers may point at Qatar for its role in hosting the US-Taliban talks. Qatar is also temporarily hosting a reported 20,000 Afghan refugees who are eligible for US visas and awaiting their paperwork. These refugees are wanted by the Taliban, creating a possible (but still remote) risk of retributory attacks against Qatar. On the positive side, the Biden administration will be grateful for Qatar’s role in shouldering the politically sensitive burden of hosting Afghan refugees.
On the domestic front, in May the powerful finance minister Ali Shareef al-Emadi was arrested over allegations of embezzlement and abuse of power. The emir subsequently removed him from his post and an investigation was launched into alleged practices that led to “damage to public funds”. The arrest of al-Emadi was highly unusual as allegations of criminal conduct by senior state officials are typically addressed behind closed doors. The government’s decision to publicise the arrest and the investigation speaks to the broader anti-corruption push that is under way.
In late July, the emir approved an electoral law that will govern Qatar’s first legislative polls, which are set to be held in October. The law sparked rare demonstrations as members of the large, but marginalised, Al-Murrah tribe voiced opposition to the law’s eligibility provisions. The law states that eligible voters must be citizens aged 18 and over, and whose grandfather was born in Qatar. Members of the Murrah tribe reside across the Gulf, with most living in Qatar and Saudi Arabia, meaning that many have mixed Saudi and Qatari lineage. This, according to some Murrahs, excludes them from both voting in and running as candidates in the upcoming Advisory (Shura) Council.
Qatar’s post-boycott economic course will rest on its core strength in liquefied natural gas. The first phase of the North Field Expansion (NFE) project, which received a final investment decision in February 2021, is likely to be the largest energy project to proceed this year. It is also well timed, as Qatar winds down its World Cup-driven infrastructure programme.
Qatar’s effective COVID-19 vaccination campaign will drive a rebound in private sector activity, boosting growth prospects. Enough doses have been administered fully to inoculate more than 70% of the 2.9 million population, putting Qatar among the global leaders in terms of vaccination rates. This, combined with the NFE project, will lift gross domestic product growth to around 2.9% from a contraction of 2.7% in 2020. Fiscally, the 2021 state budget was based on oil prices at USD40 per barrel, creating comfortable surpluses.
TREND ▲
Given the bedrock hydrocarbon industry’s prevailing model of joint ventures with oil majors, expropriation risks are minimal. Qatar is also touting its new industrial free zones, co-located with its new sea and airports, as destinations for foreign investment. The country has increased the number of areas where foreigners can own property. A new foreign investment law (the Law on Non-Qatari Capital Access to Qatari Market) promulgated in 2019 should widen the range of sectors in which full ownership is permitted, although details are pending. In April 2021, a proposed amendment of that law, if approved, will allow 100% ownership of the capital of Qatari shareholding companies listed on the Qatar Stock Exchange, a move that could spur inflows into listed companies.
Qatar’s leader Emir Tamim bin Hamad Al Thani used the Qatar boycott to promote nationalist sentiment, with popular support coalescing around his rule. He has also increased senior royals’ visibility in key government briefs, including foreign minister. These moves have helped to consolidate the emir’s domestic power base.
In November 2020, the emir announced that long-promised elections for the legislature would be in October 2021. With power almost entirely centralised, the Advisory Council is effectively a rubber-stamping body; regardless of the elections, the Council will remain loyal. Given neighbouring Kuwait’s persistent policy deadlocks due to its powerful parliament, the appetite for greater political openness in Qatar is weak.
The electoral law has sparked renewed debate about citizenship. Those who led opposition to the law have been referred to the public prosecutor for “inciting racial and tribal strife”. Tribal grievances will be mediated in private, with the emir’s personal involvement. Qatar’s internal stability and the emir’s popularity will remain intact.
Qatar’s large expatriate population means that its security sector has traditionally focused on internal security, but the sharp downturn in relations with its large and well-armed neighbours has forced it to re-evaluate its military -- Qatar’s armed forces are growing exponentially. The United States will continue to be Qatar’s ultimate security guarantor, especially as Qatar contains Al Udeid airbase, US Central Command’s forward headquarters.
Qatar has no terrorism and negligible organised crime. Well-paid security personnel and stringent border controls make successful attacks unlikely. Qatar has expanded its counterterrorism cooperation with the United States in recent years and has made terrorist financing an increased focus of its domestic counterterrorism activities, in response to criticism over gaps in its financial system. In 2019, Qatar ratified new anti-money laundering and counterterrorism financing legislation.
Aside from formal central bank foreign reserves, which stood at around USD36.8bn in January 2021, sufficient for well over three months’ import cover, Qatar has other liquidity and more than USD200bn in foreign assets held by the Qatar Investment Authority. The country also has the capacity to raise foreign exchange through borrowing. In late June, Qatar Petroleum raised USD12bn from the largest emerging markets’ bond sale of the year. As such, Qatar is very likely to remain committed to, and capable of maintaining, its currency peg to the US dollar. There are currently no known international sanctions against Qatar.
Qatar is rated AA- with a stable outlook by the three main credit rating agencies, reflecting its robust financial buffers, vast hydrocarbon reserves and high per capita income. Qatar was last downgraded in 2017, following the onset of the quartet’s boycott and liquidity risks related to the banking system’s dependence on non-resident deposits, which account for more than a quarter of total deposits, though non-resident deposits are recovering. Banks have also been able to diversify the geographical composition of non-resident deposits and lengthened their maturity structure. Post boycott, the combination of better liquidity management, the easing of Qatar’s supply chain risks and the country’s return to the Arab fold make a strong case for a rating upgrade in coming months. Therefore, sovereign default risks are low.
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