Gulf crisis: IMF warns of weakened medium-term growth

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The International Monetary Fund (IMF) has warned longer term economic growth could weaken in the Gulf region if a months-long diplomatic crisis remains unresolved.

In a report published on Tuesday, the global financial institution said that while the rift has a “limited impact” on current growth, Qatar and its blockading neighbours face a “broader erosion of confidence” from investors.

“A protracted rift could slow progress toward greater GCC integration, and cause a broader erosion of confidence, reducing investment and growth and increasing funding costs in Qatar and possibly the rest of the GCC,” the IMF warned in its Regional Economic Outlook.

On June 5, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut ties with Qatar and imposed a land, sea and air embargo, accusing it of supporting “terrorism”. Doha has strongly denied the allegation.

As a result of the blockade, business and financial activities were initially interrupted, not only in Qatar but also its neighbouring countries.

In its report, the IMF said Qatar’s sovereign credit rating and outlook was downgraded, raising interbank interest rates. Private sector deposits among citizens and other residents also declined, the institution added.

According to a Moody’s Investors Service report, from June to July this year, an estimated $30bn were withdrawn from Qatar’s banking system.

Moody’s also estimated that Qatar used $38.5bn of its reserve to support the economy.

Market adjustments

But the situation has since stabilised, and Qatar’s “economy and financial markets are adjusting to the impact of the diplomatic rift”, the IMF said. 

Food supplies and other imports from Saudi Arabia have also been replenished with shipment from Turkey, Iran and elsewhere.   

In the more than four months of the blockade, Turkish exports to Qatar have also jumped by 90 percent to $216m, according to a report by the Aegean Exporter’s Association. 

Qatar’s central bank have also injected liquidity into the banks, and public sector deposits have also increased, said the IMF report.

Qatar’s main exports of oil and gas have not been interrupted, including large volumes of gas supplied to Oman and the UAE, the report added.

The initial concern that “trade disruptions could affect the implementation of key infrastructure projects”, particularly ahead of Qatar hosting the 2022 World Cup, has also been “mitigated”, by the availability of an inventory of construction materials and of alternative, and competitive, sources of imports, IMF said.

Kuwait has tried to mediate the Gulf Cooperation Council (GCC) crisis, as has the US, which has a major military base in Qatar. But so far, diplomatic efforts have been stalled.

Qatar’s Emir Sheikh Tamim bin Hamad Al Thani  has recently said he will not bow to pressure from the blockading countries, calling the independence and sovereignty of the Gulf nation a “red line”.

“Our sovereignty is a red line. We don’t accept anybody interfering our sovereignty,” Sheikh Tamim told US television programme 60 Minutes.

He also accused blockading countries of seeking to force a change of leadership in Qatar.

“History as well tells us, teaches us, they tried to do that before, in 1996 after my father became the emir.”

Sheikh Tamim also expressed his willingness to join a meeting with other GCC leaders, including at Camp David as suggested by US President Donald Trump to resolve the crisis.

But Bahrain’s King Hamad bin Isa Al Khalifa said his country will not take part in any meeting attended by Qatar, unless Doha “corrects its approach”.

In recent days, Bahrain’s Foreign Minister Khalid al-Khalifa also called for the suspension of Qatar from the GCC.