Qatar sees major decline in external fund outflow

DOHA: The outflows of external funds from Qatar have started to reverse, somewhat in the first quarter of 2018. Total outflows has decreased to $10bn as of March 31, 2018, compared with $22bn at year-end 2017, S&P Global Ratings noted in its ‘Europe, the Middle East, and Africa (EMEA) financial institutions monitor for Q3, 2018’, yesterday.

The report said the new inflows of funds to Qatar came primarily from interbank funding. The government’s injection of funds was about $42.2bn at March 31, 2018.

Financial institutions in Europe, the Middle East, and Africa (EMEA) are operating in economic conditions that have weathered recent shocks quite well. Credit conditions still remain favorable, supported by the European Central Bank’s accommodative monetary policy, particularly in the bank market where lenders have capital to deploy.

However, the sensitivity of the financial markets is picking up and credit spreads are starting to widen in both developed and emerging markets as the US Federal Reserve sets a course for higher rates.

Overall, the economy’s good momentum should help banks in EMEA maintain sound or improving balance sheets, while making some moderate progress on profitability with cost initiatives offsetting still weak revenue growth. This is reflected in our outlook bias on EMEA banks that remains largely positive, with about 16 percent of S&P’s bank ratings carrying positive and nearly 71 percent stable outlooks.

EMEA emerging-market economies are facing a more challenging external environment, against the backdrop of higher US rates, a stronger US dollar, and an escalation of global trade tensions.

The outlook for capital flows to emerging markets has worsened, as market expectations regarding the US economy have shifted toward stronger growth and higher inflation, and a steeper path for US rates. This also implies a stronger US dollar, at least in the short term.

Estimates by the Institute of International Finance suggest that 10 percent appreciation in the trade-weighted US dollar would reduce annual net capital inflows to emerging markets by some $95bn. Across major EMEA emerging markets, currencies have weakened and bond yields rose in second-quarter 2018.