Qatar sees no basis yet for diplomatic solution to crisis

Kuwait, the mediator of the dispute, remains in contact with Qatar and the US
Qatari Foreign Minister Mohammed bin Abdulrahman al-Thani \n (Photo: KARIM JAAFAR/AFP/Getty Images)
By Bloomberg
Mon 12 Jun 2017 05:02 PM

Qatar is still waiting for specific demands from the
Saudi-led bloc that has severed ties with the Gulf state, and therefore sees no
basis yet for a diplomatic solution, Foreign Minister Mohammed Al Thani said.

Kuwait, the mediator of the dispute, remains in contact with
Qatar and the US, Al Thani said on Monday.

Finance Minister Ali Shareef
Al Emadi said earlier that the country has enough financial firepower to defend
its currency and economy and that the plunge in Qatari assets was a “normal”
reaction to moves by Saudi Arabia, the UAE, Bahrain and Egypt
to cut diplomatic and transport links.

“We’re business as usual and we’re open for business,” he
told CNBC in an interview broadcast Monday.

The Saudi-led alliance is demanding that Qatar distance
itself from Iran and stop funding Islamist groups. Qatar denies sponsoring
terrorism and accuses the Saudis of seeking to dominate smaller neighbours.

Under pressure

The unprecedented measures have prompted investors and
economists to ponder how long Qatar, the world’s biggest exporter of liquefied
natural gas, can weather the pressure without having to devalue its currency or
sell any of its global assets. Qatar’s sovereign wealth fund, one of the
world’s largest, controls stakes in companies from Glencore Plc to Barclays
Plc.

Qatar’s most liquid bonds tumbled last week as its sovereign
rating was cut and bets against its currency surged.

“Our reserves and investment funds are more than 250 percent
of gross domestic product,” Al Emadi, who sits on the board of the sovereign
wealth fund, said.

“I don’t think there is any reason that people need to be
concerned about what’s happening or any speculation on the Qatari riyal.”

Mohamed Abu-Basha, a Cairo-based economist at the EFG-Hermes
investment bank, doesn’t see any major risks to the riyal or Qatar’s growth
prospects.

“The Qatari government can continue leading economic
activity with little interruption,” he said. The cost of these investments is
likely to increase because material can no longer come across the land border
with Saudi Arabia, he said. Yet while this might expand the country’s budget
deficit, that risk is “by no means life-threatening,” he said.

Ratings companies have been less sanguine about the feud’s
effect on the economy of the world’s largest exporter of liquefied natural gas.

S&P Global Ratings lowered Qatar’s long-term rating by
one level to AA- last week and put it on negative watch, on concern the
country’s finances will be affected. At the same time, it said on Sunday that
Qatari banks are strong enough to survive the pullout of all Gulf money and a
quarter of their other foreign holdings.

In a worst case scenario, only two
unidentified lenders would have to dip into their investment securities
portfolio, S&P concluded.

Downgrades

The biggest danger Qatar faces would be further credit
rating downgrades, said EFG-Hermes’s Abu-Basha. Banks rely on non-resident
deposits and foreign borrowing, and additional downgrades could scare away
foreign funding and hurt the financial system’s liquidity, he said.

Moody’s Investors Service sees the potential to push up
Qatar’s borrowing costs. Qatar’s sovereign credit strength will be hurt
primarily on higher funding costs, while a pick-up in foreign investment
outflows would drain foreign-exchange reserves, it said.

Al Emadi predicted the countries isolating Qatar will share
in the economic pain they’re inflicting on it.

“A lot of people think we’re the only ones to lose in this,”
the minister said. “If we’re going to lose a dollar, they will lose a dollar
also.”

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