DOHA: The international credit rating agency, Capital Intelligence (CI), has affirmed Qatar’s Long-Term Foreign Currency and Local Currency Ratings of ‘AA-‘ and its Short-Term Foreign and Local Currency Ratings at ‘A1+’. The Outlook for Qatar’s ratings remains ‘Stable’.
Qatar’s ratings primarily reflect the country’s substantial economic wealth and sound macroeconomic management. The country’s strong public and external finances are underpinned by the sheer scale of hydrocarbon production relative to the small size of the population.
The ratings agency noted Qatari government is a comfortable net external creditor, and sizeable foreign assets provide the country with the capacity to absorb mild external shocks and mitigate concentration risks arising from the dependence on hydrocarbons. At an estimated 69.8 percent of GDP or 103.5 percent of current account receipts (CARs) in 2015, external debt is high in comparison to most other Gulf Cooperation Council (GCC) countries. However, it is deemed to be within the repayment capacity of the economy in view of the substantial external assets of the government and the private sector.
Economic concentration risk, fiscal rigidity and limited transparency continue to weigh on the sovereign’s ratings, despite recent reforms aimed at diversifying the economy and strengthening fiscal discipline.
In addition, the country’s public institutional framework is still at the relatively early stages of development, and fiscal transparency – while improving – is not high.
The Outlook for the ratings is ‘Stable’, meaning that the Qatar’s sovereign ratings are likely to remain unchanged over the next 12 months, provided that key metrics evolve as envisioned in CI’s baseline scenario and no other credit quality concerns arise.
The ‘Stable’ Outlook balances the country’s substantial financial buffer and shock absorption capacity against its institutional weaknesses, reliance on hydrocarbon revenues and vulnerability to prolonged periods of steep declines in hydrocarbon prices.
Qatar is the world’s third largest producer of natural gas after Russia and Iran, and is by far the largest exporter of LNG. According to the International Energy Association (IEA), the country has proven natural gas reserves of around 883 trillion cubic feet, with a reserve to production ratio of around 58 years.
Qatar’s prudent investment in large scale LNG has contributed to one of the highest levels of GDP per capita in the world, estimated at $93,961 in 2014.
Benefiting from previous years of high energy prices and reasonably prudent fiscal management, the public finances remained sound, as the central government budget has been in surplus since the fiscal year that ended March 2001.
The budget surplus narrowed to 5.4 percent of GDP in FYE 2015. The intermediate-term fiscal outlook shows escalating downside risks in view of the low hydrocarbon prices, in addition to the increased competition of the shale gas produced in the United States, and the growing expectation that Iran will return to the natural gas export market when the economic sanctions are removed.
Therefore, CI expects that the budget surplus will drop to 2 percent of GDP in FYE 2016. In this regard, CI notes that a prolonged period of low hydrocarbon prices could lead to further weakening in the budget position. Gross government debt is also moderate at an estimated 26.1 percent of GDP in FYE 2016, and partly reflects efforts to develop local debt markets.
The current account position is expected to be in the region of 20 percent of GDP in 2015 and is likely to remain in a declining surplus over the medium-term, covering external debt falling due by a large margin and contributing to the accumulation of official foreign assets. Lower hydrocarbon prices in addition to the increasing pressure on LNG exports (as the United States – a major LNG importer – commenced commercial shale oil production) are expected to drive the current account surplus to 15 percent of GDP in 2016 and to 7 percent of GDP in 2017, compared to 31.2 percent in 2013.
