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Mon 30 May 2016 01:28 PM

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Qatar's current account deficit 'will be short-lived', says senior economist

Over the next decade, BMI Research forecasts the current account to turn again to surplus as hydrocarbon prices edge higher from 2017, of an average of 1.7 percent

Qatar's current account deficit 'will be short-lived', says senior economist

Qatar’s 2016 current account deficit, the first in almost 20 years, “will be short-lived and poses little risks” to the country's external balance and currency peg, as it has “enough financial buffers” to meet its immediate needs, said senior economist.

Qatar will post its “first current account deficit” in almost two decades this year, as hydrocarbon prices remain low, according to a recent report by BMI Research, a Fitch Group Company.

“We forecast the current account to turn back to surplus from 2017 - as hydrocarbon prices edge higher - but the surplus will average only 1.7 percent over the next decade, well below its past levels,” BMI Research’s Emerging Markets analyst Olivier Najar told Gulf Times.

“Doha has very large foreign reserves available to cover short-term shortages and protect the peg if needed, reinforced by the $256 billion held by the country's sovereign wealth fund at the end of 2015. The country therefore has enough financial buffers for immediate needs,” Najar added.

With hydrocarbon prices edging higher from 2017, Qatar's external balance will “rapidly turn back” to positive territory, the report said.

As hydrocarbons accounted for 80 percent of Qatar’s total exports for more than a decade, the country has “suffered extensively” from the drop in global hydrocarbon prices that began in 2014.

Qatar's current account balance plunged to 7.3 percent of GDP in 2015, and BMI Research forecasts a further drop to -1.6 percent of GDP in 2016.

However, the “rapid deterioration in Qatar's external balance is no cause for concern,” it said.

The foreign currency reserves of the Qatar Central Bank amounted to $36 billion in February, enough to cover more than a year of imports, according to BMI.

In addition, the Gulf state's sovereign wealth fund held $256 billion at the end of 2015, according to the Sovereign Wealth Fund Institute.

“Over the past three months, market sentiment towards the country's external sustainability has improved,” BMI Research said as the pressure on the Qatari Riyal decreased significantly since January, when Brent crude price traded at a low of $28 for a barrel, compared to $49 on May 25.