Qatar’s fiscal position remains robust despite blockade: Fitch

QATAR’S fiscal position remains robust despite the ongoing blockade imposed on the country, Fitch Solutions has said in its latest report.

According to the May edition of Middle East Monitor released by Fitch Solutions, Qatar’s hydrocarbon exports have not been disrupted by the blockade, and it seems highly unlikely that this would change in the quarters ahead given that major international players, such as the US, would then be likely to intervene to safeguard sea lanes and stabilise oil markets.

The report said Qatar looks set to record continued growth in hydrocarbon export revenues in 2019.

“We note that hydrocarbons still account for the vast majority of Qatari fiscal revenues, at an estimated 81.5 percent of the total revenue. It is worth highlighting that the impact of hydrocarbon price fluctuations on revenues takes time to register, as investment income is transferred with some lag, and as Qatari gas exports are priced against a Brent price averaged over up to six months,” the report said.

Even if oil prices were to head lower, the report said, Qatar has considerable fiscal policy flexibility.

“Given the small size of the natural population, the government’s public sector wage and subsidy burden remain small relative to GDP. Capital spending, which accounted for an estimated 44.3 percent of total spending, can more easily be adjusted down as it is less socially sensitive,” the report said.

“In any case, we expect capex to gradually reduce over the years ahead as numerous large-scale infrastructure projects, particularly those linked to the Qatar 2022 FIFA World Cup are nearing completion. This gives the government room to pare back overall spending in the event of declining oil prices,” it said.

“OUR core view remains for the fiscal surplus to widen and the public debt-to-GDP ratio to fall over the years ahead. Overall, we forecast Qatar’s fiscal surplus to widen from 0.7 percent of GDP in 2018 to 1.5 percent in 2019 and 2.6 percent in 2020,” it said. Persistent surpluses imply the government does not technically need to issue more debt and the recent issuance may be viewed as taking advantage of the favourable market conditions to pre-finance external debt maturing next year or potentially to safeguard against any sudden global growth correction or fall in oil prices, the report said.

It may also be that the government is in part looking to test and demonstrate investor confidence, while maintaining strong ties to international banks, some of which have reportedly faced pressure from other GCC governments to scale back ties to Qatar. Finally, the report said, the issuance may be linked to efforts to build out Qatar’s sovereign yield curve and diversify its funding sources.