Tuesday, Jun 27, 2017

Dubai: The cost of securing Qatar’s sovereign debt rose sharply during June after some Arab and Gulf countries broke their diplomatic ties with Doha, according to experts from data research firm IHS Markit.

Qatar’s five-year credit default swaps stood at 112.94 basis points (bps) on Monday, after it rose 4 bps from Friday’s close to 115 bps, according to IHS Markit, which is based in Britain. This is the highest level recorded since June 2016. Economist Francisco Tang Postilos attributed the increase as a direct result of the diplomatic crisis between Qatar and its Arab and Gulf neighbours.

“Investors believe that Qatar will not be able to fulfil its financial commitments towards its debts. This will prompt some investors to demand higher returns on their investments, while others will prefer not to invest in Qatar at all,” he was quoted as saying by press reports.

Postilos expects most investors will leave Qatar if Saudi Arabia and its allies involved in the boycott will not relax sanctions that have been imposed on the country, which will lead to a sharp decline in foreign investments in Qatar.

He pointed out that the Qatari riyal has also been affected by the current crisis, recording its sharpest decline on June 22. Since June 1980, the exchange rate of the Qatari riyal had remained below $3.65, but since the crisis, the rate has reached $3.67.

The expert said: “We are still waiting for the July 1 economic report which illustrates the real impact on inflation rates and trade in Qatar. I expect an increase in inflation rates and a drop in surplus due to the rising import costs.”

Gulf News Report

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