Protracted Qatar rift could dampen Gulf mid-term growth

The economic impact of the diplomatic rift between Qatar and its Gulf neighbours has so far been limited but a prolonged crisis could weaken the region's mid-term growth, the IMF said Tuesday.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt on June 5 severed diplomatic ties with Qatar and imposed an economic blockade, accusing Doha of promoting extremist groups.

Qatar, which is a member of the Gulf Cooperation Council alongside Bahrain, Kuwait, Oman, Saudi Arabia and the United Arab Emirates, has denied the charges.

The four nations froze all economic deals with gas-rich Qatar, and Riyadh closed the only land exit for the Gulf peninsula.

"The diplomatic rift between Qatar and the neighbouring countries had a limited impact on the Qatari economy and its impact on the region is muted in the short-term," said the IMF director for the Middle East and Central Asia, Jihad Azour.

"So far, there are no signs that the diplomatic rift had an impact on growth in the GCC," Azour told AFP.

It had a "very limited impact on trade and almost no impact on oil price."

The International Monetary Fund, however, warned in its Regional Economic Outlook released Tuesday that if the crisis drags on, it will negatively impact mid-term growth prospects for the six-nation GCC.

"A protracted rift could weaken medium-term growth prospects, not only for Qatar but also for other GCC countries," the report said.

If the rift continues, it will "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."

It said the crisis had resulted in some financial pressures on Qatar as its sovereign credit rating and outlook had been downgraded, raising interbank interest rates and leading to a decline in private sector deposits.

The initial impact on Qatari banks has largely been mitigated by liquidity injections by the central bank and increased public sector deposits, the IMF said.

Last month, Moody's Investors Service estimated that around $30 billion were withdrawn from Qatar's banking system in June and July.

Moody's estimated that Qatar used $38.5 billion -- equivalent to 23 percent of its GDP -- to support the economy in the first two months of sanctions.

Source:AFP