QATAR

Qatar’s recovery from the double shock of the global Covid-19 crisis and the drop in oil and gas prices in 2020 will be solid. Real GDP contracted by -3.6% in 2020, less than the GCC average of -4.9%, thanks to a more diversified economy and lower dependence on oil revenues – Qatar’s main export product is natural and manufactured gas. A moderate recovery was underway in 2021, with estimated growth of +2.5%. The recovery is forecast to gain momentum in 2022, thanks to continued higher gas prices and a high Covid-19 vaccination rate that should allow for a further reduction of lockdown measures and support consumer spending. The FIFA World Cup 2022 taking place in autumn should also support economic growth through increased tourism revenues. Our tentative growth forecasts are around +4% in 2022 and +2.5% in 2023. However, potential renewed restrictions, for example due to the outbreak of new Covid-19 variants, or sustained supply-chain disruptions in the industrial sector pose downside risks to our forecasts.

We expect exchange rate stability to be maintained and price stability to be regained in 2022-2023. The Qatari riyal (QAR) is pegged at 3.64 to the USD. We expect the peg to hold as the Qatar Central Bank has large foreign exchange (FX) reserves to support the currency. The currency peg has ensured relative price stability since 2010. In 2021, however, headline consumer price inflation rose to over 6% y/y at the end of the year owing to base effects (deflation a year earlier), higher energy prices and global supply-chain disruptions. We expect these effects to be transitory and inflation to gradually fall back to around 2% at the end of 2022. The long-planned but so far several times delayed introduction of a 5% VAT poses an upside risk to this forecast.

The business environment in Qatar is generally adequate though spots of weaknesses remain. The Heritage Foundation’s Index of Economic Freedom survey 2021 assigns the country rank 31 out of 185 economies, reflecting strong scores with regard to property rights, tax burden, business freedom and trade freedom. Some weaknesses remain in the areas of judicial effectiveness, investment freedom and financial freedom. The World Bank’s annual Worldwide Governance Indicators surveys suggest that the regulatory and legal frameworks are generally business-friendly and the level of corruption is low. However, in recent years, the rule of law has been tainted by allegations of corruption surrounding the 2022 World Cup bid and the regulatory environment inhibits SME growth. With regard to environmental sustainability, Qatar scores badly, owing to the non-existence of renewable electricity output, a high level of water stress and a low recycling rate. It does better with regard to energy intensity, CO2 emissions and climate change vulnerability. Overall, however, Qatar ranks 181st out of 210 economies in our proprietary environmental sustainability scoring.

Systemic political risk continues to be assessed as moderate. Domestic political risk is currently low as the government's decisive response to the coronavirus outbreak points to strong institutional capacity and has boosted public support for the monarchy. However, geopolitical risks in the Middle East region remain high. Relations between Qatar and its Arab neighbors Saudi Arabia, the UAE, Bahrain and Egypt have improved in a pragmatic manner. The 2017 embargo of the latter on Qatar was lifted in early 2021 and diplomatic ties have been reinstated. However, a new dispute flaring up at some point in the medium term cannot be ruled out.