A Moody’s report released on September 13 has estimated that the Qatar Central Bank has injected $38.5bn into its economy over the past two months as the state grapples with the impact of the ongoing embargo instigated by its neighbours. In June of this year, Saudi Arabia, the UAE, Egypt and Bahrain joined forces in imposing far-reaching measures against Qatar, accusing it of propping up terrorist organisations including Al-Qaida, ISIS and Hezbollah. The Saudi-led coalition has cut diplomatic ties and imposed steep trade and travel bans, which has forced Qatar to deepen ties with alternative trade partners in an attempt to stabilise social and economic conditions.
According to Moody’s, the impact of the sanctions is “credit negative” for all members of the GCC, but Qatar and Bahrain are feeling the effects more acutely than others. “The diplomatic rift will inevitably impair the functioning of the grouping, the more so the longer it persists,” the report said.
According to Moody’s, the impact of the sanctions is “credit negative” for all members of the GCC
The negative impacts of the measures have been concentrated on the tourism, trade and banking sectors. The ratings agency predicts that Qatar has seen capital outflows in the vicinity of $30bn over the course of June and July, and this is likely to continue into the future. In response, the Qatar Central Bank has fallen back on its reserves to support bank funding, and has supplied an injection into the economy the equivalent of 23 percent of its GDP. Bahrain is also exposed to the effects of the embargo, owing to its more precarious financial situation, which has rendered it more susceptible to possible changes in risk assessment from foreign investors.
While it is facing steep social and economic costs, Qatar has denied all of the allegations coming from the coalition of four, and has refused to comply with demands from the group. Qatari officials have lodged a formal complaint with the World Trade Organisation, claiming that the blockade is politically motivated and arbitrary. Upon filing the complaint, Qatar’s Minister of Economy and Commerce, Sheikh Ahmed bin Jassem bin Mohammed Al-Thani, argued in a statement that the blockade amounts to an “illegal siege” that is “a clear violation of the provisions and conventions of international trade law”.
According to Steffen Dyck, Moody’s Vice President: “The severity of the diplomatic dispute between Gulf countries is unprecedented, which magnifies the uncertainty over the ultimate economic, fiscal and social impact on the GCC as a whole.”