Qatar’s large reserves to buffer weaker fiscal positions, external headwinds
KUCHING: RAM Ratings has reaffirmed Qatar’s respective global- and Asean-scale sovereign ratings of gAA3(pi)/stable and seaAAA(pi)/stable. The ratings are premised on the nation’s strong external position, ample reserves in its sovereign wealth fund and steady economic growth.
These strengths are moderated by Qatar’s heavy dependence on the hydrocarbon sector and exposure to geopolitical risks in the region. Akin to that of other Gulf Cooperation Council (GCC) nations, Qatar’s economy, government finances and external position are greatly reliant on the hydrocarbon sector.
Nonetheless, a large accumulation of sovereign reserves, estimated at US$372 billion or 242 per cent of GDP as at end-June 2016, underpins Qatar’s credit strength and helps the country weather the current period of low oil and natural-gas prices, providing a buffer against deterioration of its fiscal and external positions in the near term.
As the world’s top liquefied natural gas (LNG) exporter, with the 3rd-largest natural gas reserves, Qatar’s long-term LNG contracts have delayed the impact of lower hydrocarbon prices on government revenue.
“Apart from Kuwait, Qatar was the only other GCC nation to register a fiscal surplus position in 2015,” noted Esther Lai, RAM’s head of Sovereign Ratings.
Despite having one of the lowest fiscal breakeven oil prices within the GCC region, the Qatari government has continued to rein in fiscal expenses by cutting current spending and postponing low-priority capital intensive projects, alongside revenue enhancing measures and a commitment to implementing a five per cent GCCwide value-added tax in 2018.
“However, persistently low commodity prices have resulted in the renegotiation of Qatar’s long-term deals – we expect the country’s fiscal balance to dip into deficit from this year and likely remain in a mild deficit position, albeit narrowing, over the medium term.”
Meanwhile, Qatar’s current account surplus came in above RAM’s expectation at 8.4 per cent of GDP in 2015, given that the drop in the value of hydrocarbon exports was smaller than anticipated – nearly two-thirds of the country’s LNG exports went to Asia, where the decline in natural gas prices was smaller than the decline in natural gas prices in North America or crude oil prices.
That said, dampened commodity prices, the delayed start-up of the Barzan gas field and the weaker economies of Qatar’s main trading partners will weigh on exports this year.
“As such, Qatar’s current account is anticipated to register a mild deficit of 1.3 per cent of GDP in 2016, before returning to a balance position in 2017 on the back of a steady recovery in global oil prices.
“Although massive capex projects in the run-up to FIFA 2022 may boost economic activity, overheating risks and a liquidity squeeze such that it severely affects the stability of the financial system will be rating negatives.
“A sustained decline in hydrocarbon prices that poses a greaterthan-expected threat to Qatar’s fiscal and external health could also exert downward pressure on the ratings.
“As changing dynamics in the oil and gas industry due to a supply glut – in view of US shale production, Iranian supply and the completion of Australia’s LNG projects – pose risks to the country’s economy, exports and government revenue, an upgrade in the immediate term is unlikely.”