The Qatari riyal decoupling scenario in the dollar .. A flight ahead and a certain suicideTruth Consultancy
Represents a collapse of Doha’s last stronghold
Ⅶ Abu Dhabi Abdelfattah Montaser, Dubai Bright Ali Haider Wael Al-Lababidi Louay Abdullah Rami Samih Ashraf Rafiq
Date: 03 August 2017
The disconnection between the Qatari riyal and the dollar has become the second worst choice for the “Hamdeen” after the option of liquidating the assets of the sovereign and non-sovereign Qatari sovereign fund to stop the depletion of reserves, but all agree that the effects are devastating and the collapse of the last bastions of the Qatari economy. The Qatari riyal is currently under unprecedented pressure in major international exchange markets such as London, Paris and New York due to the uncertainty that has gripped the Qatari economy since the boycott it announced. The Kingdom of Saudi Arabia, UAE, Bahrain and Egypt because of the involvement of Doha with the support and financing of terrorism, prompting banks around the world to stop trading in Qatari Riyals for retail customers, under mounting pressure imposed by the crisis on the currency in which it is considering «dangerous currency».
The decoupling of the Qatari riyal and the US dollar is a matter of time, analysts said, advising investors in Qatar to transfer some of their assets to other currencies.
Qatar’s central bank announcement showed that the net foreign exchange reserves fell 30% to $ 24.4 billion in June from $ 10 billion in June. This represents a monthly decline of QAR 14 billion Or the equivalent of $ 4.12 billion). The coming months will witness an increase in the severity of the rapid erosion of monetary reserves due to the unprecedented cost of food imports, a 40% drop in imports, the drop in the Qatar Securities Index, the sharp decline in real estate prices and the loss of transport and hospitality sectors.
It will not take long for the global financial sector and foreign investors to lose the rest of the fragile confidence in Qatar, especially after Moody’s downgraded Qatar’s credit rating due to the country’s weak external position and the uncertainty surrounding the sustainability of the growth model.
As the selling pressure on the Qatari riyal, which has not fallen against the dollar for 11 years and the withdrawal of foreign deposits from banks, intensified, the central bank was forced to intervene as a dollar trader. The situation worsened as many international banks stopped trading in the Qatari currency.
It is estimated that the continued peg of the Qatari riyal to the dollar requires that the reserves remain larger than the $ 17 billion cash volume, which means that the Qatari currency is seriously threatened, after the central bank’s maneuvering margin is too tight.
Doha has no more than temporary solutions, the first of which is the decoupling of the Qatari riyal and the dollar, an option that could stop depletion of reserves, but its effects would be significant for confidence in monetary stability. The second is the use of the Fund’s liquid assets and the liquidation of what can be liquidated in defense of its currency. According to experts, it is expensive and not guaranteed because Qatar Investment Authority assets are estimated at $ 300 billion.
The continuation of sanctions
, economists stressed that the move untie riyal pegged to the Qatari US dollar , which indicate all indicators to its approach, and it has become imminent Stzlzl tumbling several weeks ago the Qatari economy since the implementation of the boycott taken by the four Arab countries calling for counter – terrorism decision (UAE, Saudi Arabia, Bahrain, Egypt ), Pointing out that the Qatari currency may fall by between 35 and 60% of its current value with the continuation of Arab sanctions in the face of stubbornness of Qatar and not to abandon support for terrorism.
Qataris and residents in Qatar will be directly affected by the dollar peg, which will lead to spikes in inflation and commodity prices, which have already seen huge rises over the past period, and will lead to the flight of investments and the decline of international confidence in the Qatari economy in light of successive problems As a result of intransigence and insistence on Twitter outside the squadron.
The negative effects of the decoupling will affect all economic sectors in Qatar, banking, trade and tourism as well as financial and other markets. This will also have a significant negative impact on Qatari investments abroad, which will lose most of their value when converting from strong dollar to weak Qatari riyal. Workers’ remittances in Qatar will also be affected by a significant decrease in the value of these remittances, which reduces the feasibility of their work outside their home countries.
They pointed out that the longer the period of implementation of the resolutions of the boycott of countries advocating the fight against terrorism the more deteriorating the economy of the country «fragile», which does not rely on strong fundamentals make it able to withstand, especially with the decline of foreign exchange reserves in Qatar, which drops day after day to new heights The expectations of the most pessimistic because the Qatari economy is a consumer economy depends on the outside almost entirely with the lack of sufficient productive pillars to respond to crises, which made the Qatari government since the first day of the decisions of the Arab boycott to foreign countries so as not to face the Qatari economy to Zaid disaster.
Reda Mosallam , general manager of «Truth» Economic Consultancy, said that decoding the riyal link Qatari US dollar will lead to a record fall in the riyal, noting that the Qatari officials are not aware of the size of the seriousness of the current situation of the economy of their country , which is falling apart rapidly day after day, where Will face great difficulties beyond their expectations and will offer their country, citizens and residents in Qatar problems that are difficult to bear, especially considering that the Qatari economy is one of the least diversified economies in the region. There is no country products in the market, while the rest of the Gulf Cooperation Council Multiple data and sophisticated industries spread in the region ‘s markets, but are exported to many countries in the world.
He added that it is certain that when the Qatari riyal is pegged to the dollar, Qatar’s credit rating will be further reduced internationally after international institutions have downgraded Qatar’s credit rating several times during the recent period and put it under review pending the possibility of further reductions, both for the Qatari country and its banking and economic institutions Which has become an enviable situation, explaining that these institutions will face difficulties in obtaining government funding, which will make them lag behind their obligations to repay their debts.
Qatar’s ability to borrow from international markets and record high swaps in Qatar’s sovereign default swaps, as well as high risk swap swaps for Qatari firms and companies in general, have reached record highs not seen in its history, Uncertainty, high fears of possible defaults to sovereign funds and Qatari government companies, and a high margin of risk swap swaps.
as Financial experts stressed that the continued volatility and large pressures faced by the price of the Qatari Riyal and the erosion of foreign exchange reserves in Qatar and the displacement of non – resident deposits from the Qatari banking system against the backdrop of Saudi Arabia, UAE, Bahrain, Egypt , the province of this country puts the Qatari riyal to the dollar link under pressure «unprecedented , And that this will lead the Qatari economy to collapse. Experts questioned the period during which Qatar’s remaining foreign currency reserves could contribute to the stability of the Qatari currency before further deterioration.
The Qatari central bank’s policy of raising the riyal and maintaining the level necessary to link the weakening Qatari currency to the dollar despite Qatar’s continued sale of its assets on the black markets will inevitably lead to the emergence of the Qatari riyal peg which is the last “lifeline” Which avoids this system talk about it so far, because it has serious psychological implications for the residents and the remaining investors.
Experts expected continued pressure on the Qatari riyal to be pegged to the dollar so that the country system provides concrete indications of changing its policy towards the points requested by the four countries.
Exodus of deposits
, said Wadah Al Taha , a financial expert and a member of the Advisory Board Chartered Institute of Securities and Investment: The exodus of non – resident deposits , which fell to $ 180 billion by the Qatar Central Bank data in May , which even before the crisis, is one of the most important pressures on the Qatari Riyal indicators .
He added that the decoupling of the Qatari riyal in the case of the dollar would inevitably weaken the purchasing power of the Qatari riyal and the high inflation rates. “If any investor feels the possibility of a dollar pegging, this will lead to a decline in the value of the invested assets with the same devaluation of the Qatari riyal,” he said. “This risk was neutral, but today investors are thinking of it as an alternative and the question is how the monetary base in Qatar can absorb these pressures if they continue .
“The boycott greatly affected the confidence in the Qatari currency, which reflected a decline in the Qatari riyal to its lowest level in three decades last week against the dollar in global markets. If the Qatari riyal is pegged to the dollar, this will lead to the deterioration of the Qatari currency and its instability Against the dollar, the imposition of precautionary measures on the displacement of deposits, the decline in asset values, the high size of fiscal deficit and current accounts, and high inflation rates to unprecedented levels ».
and said Dima Jradnh head of the Economic Research Department of the Middle East and North Africa at Standard Chartered Bank: The ongoing pressures on the Qatari economy , in turn , impose more pressure on the Qatari Riyal as well as Qatar ‘s reserves of the dollar.
“Qatar’s demand for the dollar has soared after the crisis because many investors want to liquidate their investments quickly and get their money out of Qatar, which of course has negatively impacted the Qatari riyal against the dollar in world markets. We believe that the displacement of nonresidents’ The size of these deposits of $ 4 billion in June, and this shock puts on the table the potential for greater reluctance by investors to put their investments in Qatar, and this means the continued flow of funds outside Qatar and in varying proportions until solutions to this crisis.
One bank analyst said Qatar could ask its state banks to buy more Qatari rials or raise interest rates between banks, but even the impact of these two measures would be limited at best. “The more boycotted Qatar faces, the more The funds of residents who make up 94% of Qatar’s workforce are from the banking system there, and Qatar may therefore have to impose financial restrictions to prevent the emigration of funds outside the country. Disconnecting the Qatari riyal from the dollar will lead to money out of Qatar and raise inflation to unprecedented levels. ”
and added the financial expert: «There is another important factor is that the Qatari banks relied historically in its operations on financing from foreign capital markets, and with a lower assessment of Qatar , according to credit rating agencies will increase very difficult access to external financing, not to mention the high cost of financing in the event of Access to it, the scenario of disconnection of the Qatari riyal in US dollars is very likely, which will lead to the continued decline of the Qatari riyal and the high prices and inflation rates significantly ».
and said financial analyst and economist, Amr Hussein, the chances of decoding linking the Qatari riyal to the US dollar quite strongly in the light of the difficult conditions in Doha major international institutions and the reduction of the economy ‘s credit rating, which put more pressure on the riyal in the futures markets.
Like most Gulf countries, Qatar pegs its currency to the US dollar, forcing its central bank to emulate US Federal Reserve interest rate decisions.
Hussein added, for «statement», the decoding riyal peg to the dollar would be extremely dangerous and the most serious repercussions of the boycott, noting that the largest country economy impact will be in the financial services and banking sector, as it will cause weakness of the confidence of depositors in banks, which may lead them To withdraw their deposits and further displacement of financial flows. The Qatari riyal has been pegged to the US dollar since 1982, after Qatar Central Bank stabilized the dollar at 3.64 riyals. Local banks and money exchangers deal with the exchange rate set by the central bank and add a small margin of 0.24 percent.
confirmed Hussein that the disengagement will lead to a monetary policy change in Qatar because the currency depends on the strength of the economy and weakness, pointing to the vibration of the Qatari economy is strongly influenced by the current boycott occurred, and thus will decline the currency and the decline with purchasing power and rising inflation and declining foreign investment, which represents the link In this case a non-exposure risk factor.
Qatar is dependent on imports for almost everything it needs from abroad. Therefore, disengaging from the dollar will increase the import bill, because any imported products such as cars will rise in price, causing inflation to rise and thus raising interest rates to reduce it.
Inflation in Qatar rose to 0.8% year-on-year in June from 0.1% in May, with some import costs rising after all crossings were closed.
in a related context, according to a report the National Investment Company, the research arm of the National Bank of Kuwait, the Qatari riyal is under great pressure in the futures markets with growing speculation about the overall financial boycott of the neighboring countries of Qatar may lead to the departure of financial flows and tightening credit conditions and forcing Qataris To abandon the peg of the Qatari riyal to the US dollar.
Qatar’s riyal broke its dollar peg and moved weeks ago down 4 percent at $ 3.7838 to the dollar despite Doha resorting to liquidating many sovereign assets to keep its currency stable and address liquidity shortages in Qatari banks.
The political and economic cost of pegging the Qatari riyal to the dollar would reduce any future benefit to Qatar.
The longer the extension of the
boycott imposed by Saudi Arabia, the UAE, Bahrain and Egypt on the one hand, the greater the risk of the Qatari riyal being pegged to the dollar because the central bank is intervening to save the Qatari currency from falling, thus losing many currencies, an official at Commerzbank said. Foreign.
If Qatar’s $ 33 billion foreign reserves fall, investors will be concerned about the long-term correlation between the Qatari riyal and the dollar. If the dollar and the riyal are disengaged, investor confidence will collapse.
“The economic difficulties facing Qatar, the small Gulf state, are likely to worsen over time,” Lutz Karpowicz, an analyst at Commerzbank, told Bloomberg.
“Qatar’s isolation means that it only has to use Iranian water to transport and export liquefied natural gas (LNG), and it will affect exports,” he said.
Central banks need to provide the country with foreign currency, but in the case of Qatar this is not guaranteed, because Qatar’s foreign exchange reserves do not reach a quarter of its money supply.
What’s more, the QCB must maintain the local currency price against foreign currencies, but it can decide how much the dollar will sell. This is a clear contradiction, and means that the country system in its composition does not have credit power in itself.
It is no coincidence that Qatar’s central bank governor Abdullah bin Saud al-Thani said foreign reserves amounted to $ 340 billion and injected foreign assets into the reserves.
If Qatar’s sovereign investment fund sells assets to provide additional liquidity to the central bank, a negative signal to the market will mean significant problems. In this case the pressure on the Qatari local currency will rise.
This indicates a disconnection between the Qatari riyal and the dollar as a result of the decline in foreign exchange reserves and further deterioration in the foreign exchange situation. In the long term, Qatar will not be able to withstand the boycott.
(Reuters) – The European Central Bank (ECB) is opening an investigation into investments by Deutsche Bank’s HNA group with the Qatari royal family, Bloomberg quoted James von Moltec, the firm’s fixed-income investment officer, as saying.
But he said he did not want to indulge in talking about this at the moment because the ECB is checking these shareholders and their shares in the bank now. Moltke said he did not want to pre-empt things.