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S&P affirms Qatar’s ratings with stable outlook

S&P affirms Qatar’s ratings with stable outlook

Noted rating agency S&P Global has affirmed Qatar’s sovereign ratings with a stable outlook, and said that government’s assets will likely remain a core rating strength of the economy.

The rating agency, in its report released yesterday, projected that Qatar’s GDP is expected to grow by 2.8 percent and the current account surplus will be averaging 4.5 percent of GDP in 2019-2022, assuming lower hydrocarbon prices from 2021.

Among the other key rating factors the agency noted that increasing nonresident deposits demonstrate strengthening investor confidence in the financial sector, but this largely short-term external funding worsens Qatar’s external liquidity position.

The report also said that investments related to the government’s sizable infrastructure programme will continue to support economic activity, outweighing negative sentiment related to the ongoing blockade by the Arab quartet, and domestic political and social stability will continue.

“The stable outlook primarily reflects our view that Qatar will continue to effectively mitigate the economic and financial fallout of the siege imposed on the country in June 2017 by Saudi Arabia, United Arab Emirates (UAE), Bahrain, Egypt, Libya, and Yemen, and that Qatar will continue to pursue prudent macroeconomic policies that support large recurrent fiscal and external surpluses over 2019-2022,” added the S&P report.

“A negative rating action could follow, however, if the siege ultimately has a more severe impact on Qatar than we currently anticipate, leading, for example, to significant capital outflows or an unexpected deterioration in fiscal outcomes, which might reduce Qatar’s fiscal cushion to absorb additional shocks.”

The agency highlighted that Qatari authorities have sufficient resources to continue managing the consequences of the blockade, and Qatar will continue to generate surpluses in its budgetary and external accounts over our 2019-2022 rating horizon.

“We do not expect Qatari banks will need additional government support after liquidity injections of about $40bn from the Qatar Central Bank (QCB) and other public-sector entities, mainly Qatar Investment Authority (QIA).

The agency also noted that despite temporary siege-related setbacks, Qatar’s external balance sheet remains strong, with liquid external assets continuing to offset the country’s stock of external debt by a sizable margin. It forecasts that Qatar’s net creditor position will increase by 5 percent of GDP per year on average through 2022.

“We view Qatar’s external position, however, as somewhat constrained by the large recurring data discrepancies between its balance of payments and reported international investment position, stemming from the government’s lack of disclosure on external assets”, said the S&P Global report on Qatar’s economic outlook.

Commenting on the overall institutional and economic profile, the report said that government policies will continue to support economic growth. And in the base case scenario, the siege could continue for an extended period, but it did not expect any regional geopolitical risks to escalate significantly.

“We expect economic growth will remain relatively steady at 2 percent-2.5 percent in 2019-2022. The government plans to increase gas exports by about 40 percent to 110 million tonnes annually (approximately 987 millions of barrels of oil equivalent) by 2023-2024. Until then, our growth assumptions factor in broadly stable gas production, cautious business activity and confidence, and reduced private-sector consumption,” the report said.

The report also said that government’s infrastructure programme remains supportive of economic growth, as does investment related to expansion of the North Field gas project. At an estimated 45 percent of GDP, about one-third of which is public-sector funded, Qatar’s investment spending is among the highest of all the sovereigns we rate.

In contrast, more recent indicators suggest that economic activity in Qatar was moderate in 2018, when we estimate growth at 1.5 percent. This compares with our expectation of 2.8 percent growth in the last review. The slower pace was mainly due to a contraction of the hydrocarbons sector by about 2 percent over the same period.

The rating agency also highlighted that the impact of the blockade on Qatar’s external performance has been limited as most of its export earnings from gas come from Asian customers. The UAE still accounts for 4 percent of Qatar’s exports, including gas through the Dolphin pipeline, which it did not expect will be affected by the blockade.

“We estimate the current account surplus at about 8.8 percent of GDP in 2018 versus 3.8 percent in 2017, supported by higher hydrocarbon prices, to which most of Qatar’s gas contracts are linked. Over the medium term, we expect the current account balance to remain in a surplus of around 4.5 percent, in view of our oil price assumptions (at $60 per barrel for 2019 and 2020),” added the report.