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, vast savings in its sovereign wealth fund and steady economic growth.
These strengths are, however, moderated by Qatar’s heavy dependence on the oil and gas sector and exposure to geopolitical risks in the region.
As with other GCC nations, the Qatari economy is greatly reliant on the energy sector. The country has the third largest natural gas reserves in the world and could sustain production for more than 120 years, at current output levels.
“As the world’s top liquefied natural gas (LNG) exporter, the long-term nature of Qatar’s LNG contracts have delayed the impact of lower hydrocarbon prices on government revenue,” notes Esther Lai, RAM’s Head of Sovereign Ratings.
Nonetheless, persistently low hydrocarbon revenue and continuous capital expenditure are expected to tip the fiscal balance into deficits of between 1% and 3% of GDP in 2016 and 2017, in sharp contrast to previous years.
Besides having the lowest fiscal breakeven oil price in the GCC region after Kuwait, Qatar’s huge sovereign wealth – accumulated from past fiscal surpluses – and reserves totalling 172% of GDP underpin its credit strength and should help it weather a period of low oil and gas prices.
As the downtrend in LNG prices lags that of oil, Qatar is still expected to record a current account surplus of 4.6% of GDP in 2015 (2014: 26% of GDP). Although diversification efforts over the long term (in line with the 2030 Qatar National Vision) has strengthened the State’s resilience, depressed oil prices have led to delays and a re-prioritisation of development projects.
While massive capital expenditure 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 threatens Qatar’s fiscal and external health beyond our expectations could also exert downward pressure on the ratings. Conversely, upward adjustments of the ratings will be premised on faster-than-expected growth in private-sector activity and a sustained growth momentum in non-hydrocarbon sectors.
Strengthening government finances by broadening revenue sources and/or fiscal consolidation are also viewed positively.
However, an upgrade in the immediate term is unlikely, given dampened energy prices.
