The Daily Update - Qatar

This week Qatar unveiled its latest National Development Strategy for 2018-2022. The 333 page plan is wide ranging covering areas such as infrastructure development, economic diversification, natural resources management and sustainable social and environmental development. The plan aims to increase efficiency and productivity while reducing spending to 21.2% of GDP and running small budget surpluses. It projects the economy will grow between 2.1% and 3% over this period.

In a continuation of the previous plan, further infrastructure development is seen as important to boost efficiency and competitiveness. The IMF estimates Qatar’s infrastructure program is USD 200bn in size, or 121% of 2017 GDP, and aside for helping to prepare for the 2022 World cup, aims to help diversify the hydrocarbon dependent economy. But this plan also places more emphasis on trying to build a knowledge based economy and foster private enterprise.

Another aim is to raise ‘self-sufficiency levels for farming and fishing production’ to meet 30 percent and 65 percent (respectively) of its demand domestically by 2022. The lack of self-sufficiency in these areas was highlighted after imports were initially impacted by last year’s dispute with Saudi Arabia and new trade routes had to be established. Since June 2017 Saudi Arabia, the UAE, Bahrain and Egypt suspended diplomatic and transport ties with Qatar. However, the IMF’s Qatar 2018 Article IV Concluding Statement, cautions that the food production initiative ‘should not translate into import-substitution policies with attendant inefficiencies, but rather be used to tap into regional and global value chains.’

It remains to be seen whether Mike Pompeo, the new candidate for US Secretary of State, follows Rex Tillerson’s approach of trying to mediate a solution between Saudi Arabia and Qatar. Importantly, the US still has its largest regional military base in Qatar and while relations between Saudi Arabia and Qatar may remain strained the situation has not escalated.

Qatar’s strong net external asset position has enabled it to weather the lower oil price environment post 2014 and the impact of any capital outflows during the 2017 Saudi Arabia-Qatar spat. The Qatar sovereign remains rated Aa3/AA-/AA- by Moody’s/S&P/Fitch reflecting its asset strength and geopolitical risk is reflected in a negative outlook by all rating agencies. We think at current levels the risk reward trade-off looks attractive: Qatar 6.4% 2040 trades on a yield of 4.7% with ~5 notches of credit cushion according to our models.

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