Qatar's diplomatic crisis is sapping confidence in its state finances

LONDON — The longer Qatar is blockaded by its neighbours, the more confidence is sapped from its government finances.

Credit rating company Moody’s lowered the outlook on Qatar’s debt sustainability to “negative” from “stable” on Wednesday, citing the increased likelihood that its diplomatic crisis will continue into 2018

Moody’s stopped short of cutting its Aa3 rating of Qatar, referencing the government’s deep pool of financial assets and high levels of individual wealth.

Qatar’s crisis struck on June 5 when Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and trade ties and accused it of supporting terrorist groups such as the Islamic State and Al-Qaeda. Qatar has denied the allegations.

Saudi Arabia and its allies will hold talks on Wednesday in Egypt. They issued Qatar with 13 demands that must be met to lift their blockade of the country, including the disbanding of news channel Al Jazeera. Qatar said the demands were impossible to meet.

The blockade has had an immediate effect on Qatar, which has imported cows to maintain its milk supply and battled to keep its tight currency peg with the dollar.

Last month shares in the country’s banks fell sharply after the UAE central bank told its lenders to stop dealing with 59 individuals with links to Qatar and carry out enhanced due diligence on their activities with six Qatari banks.

Qatari lenders receive a lot of funding from other Gulf states, about 60 billion riyals ($US16.5 billion) according to a Reuters report, which could dry up if the crisis continues or worsens.

The Qatari riyal hit 3.67 to the dollar, its weakest level in 19 years. Qatar’s central bank has pegged the currency to 3.64 to the dollar so even small movements are likely to produce new lows.

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