Irrespective of other considerations, Qatar’s economic crisis is worsening faster than we expected, with several indications coming to light in spite of frequent denials by the Qatari side. It is a fact that a market has its own circumstances and objective requirements that are difficult to ignore and we are going to review below some of the recent developments.
The Qatari riyal exchange rate against the US dollar has been severely affected as the Qatar Central Bank pegs the riyal at 3.64 with some limited change. Although the riyal is seen as the strongest of Gulf currencies, that didn’t stand in the way of the crisis a month ago.
On the first day of the crisis, the riyal against dollar plummeted to 3.647 followed by another quick decline to 3.79 after which the Central Bank had to intervene to raise it to 3.77. However, the exchange rate is still fluctuating due to excessive pressures, especially after international money exchange institutions refused to deal in it.
In the same vein, the UK branch of Travelex, a global money exchange company and one of the UK’s biggest, and Halifax Bank of Scotland announced they won’t accept the Qatari riyal. in addition, local money exchange companies (in Qatar) are trying to avoid the riyal in spite of central bank surveillance, or dealing with it in limited volumes to forestall any possible developments and reduce their losses.
And to twist the knife, foreign and local manpower in Qatar is seeking to transfer their savings outside Qatar fearing further declines, leading to reduced foreign currencies at money exchange firms. This will in turn set limits on transfers or converting due to pressure by the central bank or other concerns.
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The US Treasury Department has issued a statement, noting that there are 43 terrorists living in Qatar, which is a serious indicator that may result in grave financial implications that could deeply affect the Qatari economy.
The intervention of the Treasury Department means that things have reached a sensitive level. Institutions the world over — and especially those in Qatar — will now have to freeze or confiscate all assets belonging to those terrorists. If they fail to do so, their countries will be sanctioned by the US and be in deep trouble. Based on previous experience, such sanctions are usually harsh and affect economic situations.
Finally, Qatar has withdrawn 60 billion Qatari riyals ($16 billion) from its deposits and borrowed 10 billion riyals ($2.65 billion), meaning it suffers from the lack of liquidity that resulted from the crisis and the Arab boycott. In addition, its sovereign debts has also increased by 150 per cent as a percentage of GDP (gross domestic product), a sharp rise that exceeded the safety limit (of 60 per cent), which foreshadows a serious financial situation.
In a related context, the Iraqi government of Prime Minister Haider Al Abadi said it had no knowledge of how the $700 million handed in cash to the People’s Mobilization Forces (PMF) (Al Hashd Al Sha’ab) as part of a deal to free Qatari hostages at Baghdad airport were handled without the knowledge of Iraqi officials. The Iraqi government also does not know about the $300 million that were sent and handed in cash to Al Nusra Front.
It goes without saying that many Iraqi entities will divide the money among themselves at the end of the day, and this is proofs that the funds were sent not as a ransom but to offer support.
However, the fact is Qatar is in dire need of the billions that were sent to individuals and organisations that didn’t deserve them and at the expense of the Qatari people and economy. These billions could have been used to boost development, especially small and medium-sized enterprises much needed by the economy to develop the private sector and boost its development contribution.
We can notice that no one tries to abuse Qatar or its people but facts speak for themselves. Unfortunately, the financial crisis will worsen if Qatar does not respond to its neighbours’ demands and stop abusive acts that led to such a grave political, security and economic situation.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.