Bahrain Mirror-Reuters:  Qatar's government has acted effectively in protecting the economy against sanctions imposed by other Arab countries, an International Monetary Fund official said on Wednesday after leading an IMF team on a week-long visit to Doha.

"The impact on banks' balance sheets was mitigated by liquidity injections by the Qatar central bank and increased public sector deposits," Mohammed El Qorchi said in a statement.

"These reactions reflected effective coordination and collaboration among key government agencies."

Qorchi also said Qatar had acted quickly to reroute trade disrupted by the sanctions and establish new sources of food supply, easing fears of shortages, and that efforts to diversify sources of food and external finance were accelerating.

"The initial concern that trade disruptions could impact the implementation of key infrastructure projects has also been mitigated by the availability of an inventory of construction materials and of alternative sources of imports," he said.

Saudi Arabia, the United Arab Emirates and Bahrain - fellow members of the six-nation Gulf Cooperation Council (GCC) - cut diplomatic and transport ties with Qatar on June 5, accusing Doha of supporting terrorism, which it denies.

Closure of the Saudi border with Qatar and disruption to shipping routes via the UAE slashed Qatar's imports by over a third from year-earlier levels in June and July. Institutions in Saudi Arabia, the UAE and Bahrain have begun pulling money out of Qatari banks, threatening their balance sheets.

NO RECESSION

Forecasts made by Qorchi suggested the sanctions would not come close to pushing Qatar into recession, however.

He predicted growth outside the oil and gas sector would moderate to 4.6 percent in 2017 from 5.6 percent in 2016, and be 4.8 percent over the medium term.

He forecast the central government's budget deficit would shrink to 5.9 percent of gross domestic product in 2017 from 8.8 percent in 2016, and continue falling in 2018, when Qatar would introduce a value added tax.

Qatar's current account is projected to improve to a surplus of about 3.9 percent of GDP in 2017 from a deficit of 7.7 percent in 2016, because of the contraction in imports and higher oil and gas prices.

Nevertheless, Qorchi warned the diplomatic dispute could eventually have a serious impact across the region.

"Over the longer term, the diplomatic rift could weaken confidence and reduce investment and growth, both in Qatar and possibly in other GCC countries as well," he added.

Qatar's foreign minister said on Wednesday that Doha was willing to negotiate an end to the rift but had seen no sign that Saudi Arabia and other countries were open to mediation. A senior UAE official has said Qatar could be isolated for years.

Qatari government figures released on Wednesday showed industrial production had dropped only slightly in the second quarter, shrinking 2.2 percent from a year earlier and 0.6 percent from the previous quarter.

The mining and quarrying sector, which includes crude oil and natural gas, shrank 2.1 percent from a year ago and 1.3 percent from the previous quarter, but analysts believe gas output was not significantly affected by the sanctions, and it may have fluctuated for other reasons.

Manufacturing of basic metals fell 14.5 percent from a year earlier but manufacturing of food products jumped 12.5 percent as Qatar ran some food processing plants overtime to offset the disruption to imports.

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