FILE PHOTO: The Standard and Poor's building in New York, August 2, 2011. REUTERS/Brendan McDermid
DOHA: S&P Global Ratings has affirmed its ‘AA-/A-1+’ long- and short-term foreign and local currency sovereign ratings on Qatar.
The ratings affirmation reflects the global ratings agency’s expectation that the Qatari authorities will continue to actively manage the boycott while preserving Qatar’s core rating strengths, including its strong public sector balance sheet.
The government has taken measures to ease the immediate economic and financial effects of the blockade. In particular, it has established new trade routes through other countries in the region, resulting in a recovery in imports, S&P said yesterday. The outlook is negative.
The fall in nonresident deposits and inter-bank placements has been offset by liquidity injections by Qatar Central Bank (QCB) and repatriation into the domestic banking sector of about $40bn (24 percent of GDP) of public sector assets (mostly Qatar Investment Authority [QIA]), previously held abroad. The deposit outflows have stabilised to a manageable level since November 2017. This somewhat reduces the likelihood that the banks would need substantial additional government support. The ratings agency noted that Qatar may see further nonresident deposit outflows as they mature, which it expects would be manageable.
“We expect Qatar’s liquid external assets to continue to offset the country’s stock of debt by a reasonable margin. However, Qatar’s gross external financing needs remain sizable, owing to the share of short-term external funding in Qatar’s large banking system.”
S&P expects government policy to continue to actively mitigate the impact of the boycott and remain supportive of accelerating economic growth. The government’s infrastructure plan will continue to support economic activity.
Qatar is expected to continue the key macroeconomic policies of the QR461bn infrastructure development plan for 2015-2024. In response to the boycott, the government has deployed significant financial support to its domestic banks.
“Our estimate of government liquid assets is still very high at over 130 percent of GDP in 2018. The Qatari authorities’ policy response to falling oil prices since 2015 has been relatively strong and included reigning in current expenditures, merging line ministries, and implementing numerous cost-saving initiatives within its core government-related entities--fiscal deficits have been modest as a result.”
Supporting the ratings, Qatar has the world’s third-largest proven natural gas reserves and is the largest exporter of liquid natural gas.
The global ratings agency expects Qatar’s reserves to provide many decades of production at current levels. The hydrocarbon sector contributes about 55 percent of Qatar’s GDP, 80 percent of government revenues and 90 percent of exports.
With a high GDP per capita Qatar has sufficient wealth to mitigate the impact of weak trend growth.
S&P noted that the population growth slowed sharply to about 2 percent in 2017 and will increase only modestly to about 3 percent annually until 2021, following the completion of many of the government’s large infrastructure projects.
S&P’s growth assumptions factor in broadly stable gas production, but cautious business activity and confidence, alongside lower private-sector consumption.
However, with improving hydrocarbon prices, the government’s infrastructure program continues to support economic growth in addition to investment related to a new petrochemicals refinery. The government has announced measures to help boost growth in the tourism sector and support the labor supply, including a visa-free entry programme for 80 nationalities. S&P does not include the 2017 lifting of the moratorium on production from Qatar’s North Field in our projections because it expects the potential related revenues, for the most part, to fall outside of our rating horizon. The government expects LNG production to increase by approximately 30 percent in 2023-2024.
S&P estimates the current account surplus at about 4.5 percent of GDP in 2018, supported by higher hydrocarbon prices. Outflows of nonresident funding from Qatar’s banks totaled about $18bn at year-end 2017 as a result of the boycott, but liquidity injections by QCB and Qatari public sector deposits to support the banks were more than double that at $40bn. The ratings agency expects the high level of government assets will remain a core rating strength
