S&P affirms Qatar’s credit ratings with stable outlook

Various economic reforms could gradually increase Qatar’s long-term growth potential

THE S&P Global Ratings on Saturday announced that it has affirmed its long-term and short-term foreign and local currency sovereign credit ratings on Qatar at ‘AA-/A-1+’with a stable outlook.

“In view of the sharp fall in international oil prices, we have significantly lowered our oil price assumptions for 2020 and 2021. Nevertheless, Qatar’s government and external balance sheets currently remain strong and provide a buffer to withstand external shocks,” the global rating agency said.

“The stable outlook indicates our view of broadly balanced risks to the ratings. While hydrocarbon prices could remain low, we don’t expect the government’s fiscal and external positions will materially deteriorate beyond our current expectations. Despite our view of continued institutional weakness, we expect a timely policy response from the government in the context of soft economic growth and continued stress in the international capital markets,” it said.

The S&P Global Ratings materially lowered its oil price assumptions for 2020 on March 19, 2020. This follows an earlier significant downward revision of its price assumptions on March 9, 2020. Prices for crude oil in spot and futures markets are more than 55 percent lower than levels observed during the summer of 2019 when prices increased on the back of rising geopolitical tensions.

“When we last reviewed Qatar, we expected Brent oil prices to average $60 per barrel in 2020 and to gradually decline to $55 in 2021 and beyond. We now assume an average Brent oil price of $30 per barrel in 2020 and $50 per barrel in 2021, and $55 per barrel from 2022,” the report said.

“In line with our economic outlook, we anticipate a recovery in both GDP and oil demand through the second half of 2020 and into 2021 as the most severe impacts from the coronavirus outbreak moderate,” the report said.

“Qatar derives about 50 percent of its GDP, 80 percent of government revenue, and more than 85 percent of exports from the hydrocarbon sector. Our expectation of lower oil prices will weigh on the country’s economic outlook and we project average growth at about 1.5 percent over the forecast horizon through 2023,” it said.

Nevertheless, the rating agency said, “We expect the deterioration in Qatar’s credit profile to be contained. The ratings are supported by the very strong external and fiscal positions, which are underpinned by relatively low central-government debt and the large external assets Qatar has built up over several years.”

In view of oil price assumptions, the report said, it forecast that the general government balance will record a deficit of 2 percent of GDP in 2020 compared with a 6.6 percent surplus in the previous year and revert to about 4.5 percent surplus by 2023.

“Mirroring developments on the fiscal side, Qatar’s external accounts will run a deficit through 2021, before reverting to about 4.2 percent surplus in the remainder of the forecast period. We now project liquid external assets will exceed external debt by 93 percent of current account payments over the forecast horizon, which compares with 136 percent in our last publication,” it said.

“Qatari banks’ non-resident liabilities continue to rise. We estimate the share of external funding maturing within 12 months is about two-thirds of the total,” the report said.

Despite increased external financing needs, S&P said, it still regards Qatar’s overall external position to be a key strength, underpinned by the estimate of its large liquid financial assets, equivalent to more than 100 percent of GDP.

“This provides the government with an exceptional buffer during financial shocks. We believe that the authorities are likely to provide extraordinary liquidity support to the banking system, in case of sudden reversals in foreign flows,” it said.

“The government is bringing in structural reforms to diversify Qatar’s economy and reduce its dependence on hydrocarbons. The reform agenda pertains to the overall business environment, labour law, real estate market liberalisation, increased foreign ownership limits, and public-private partnership initiatives. In our view, despite the long implementation horizon, these reforms could gradually increase Qatar’s longterm growth potential,” S&P said in the report.