Qatar could defend its currency for years in the face of economic sanctions by other Gulf states, the country’s balance sheet suggests, so the riyal’s peg to the US dollar is unlikely to fall victim to the region’s diplomatic crisis.
The riyal fell yesterday in the offshore forwards market to its lowest level against the dollar since December 2015, when low oil and gas pricesraised concern about all the Gulf economies.
But the world’s top liquefied natural gas exporter is so rich that it could offset the threatened capital outflows by liquidating just a portion of its financial reserves. And as long as it can keep exporting gas, its current account balance is unlikely to go deep into the red.
That means the riyal’s spot market peg of 3.64 to the dollar is probably safe for the foreseeable future. Any decision to change the peg would essentially be political rather than economic.
At their lowest yesterday, forwards prices implied riyal depreciation of under 2 percent over the next 12 months.
Many economists at financial institutions in the Gulf decline to discuss Qatar publicly because of the political tensions, but privately they say they expect Qatar to defend itscurrency successfully.
“We are not looking for the Qatari peg to break,” wrote Chris Turner, global head of strategy at Europe’s ING, though he called the pressure on the riyal unprecedented and said other countries’ experience in the past 25 years indicated that if the peg did break, the riyal could fall at least 20 percent.
Before the crisis, the IMF predicted firm oil and gas prices would help Qatar run a surplus of $1.2bn this year, rising gradually to $4.7bn in 2020, against a deficit of $3.5bn last year.
Because of the fact that many major banks have links to the government, Qatar would probably find it easier than most countries to impose capital controls if that became necessary to prevent residents from sending large amounts of money abroad.
Jason Tuvey, Middle East economist at Capital Economics in London, said he did not expect the riyal’s peg to break.
The Peninsula