Capital Intelligence (CI), the international credit rating agency, today announced that it has affirmed Qatar’s Long-Term Foreign Currency and Local Currency Ratings of ‘AA-’ and its Short-Term Foreign and Local Currency Ratings at ‘A1+’. The Outlook for Qatar’s ratings remains ‘Stable’.
Qatar’s ratings primarily reflect the country’s substantial economic wealth and sound macroeconomic management. The country’s strong public and external finances are underpinned by the sheer scale of hydrocarbon production relative to the small size of the population and supported by favourable trends in international energy prices.
Qatar is the world’s third largest producer of natural gas, after Russia and Iran, and by far the largest exporter of liquefied natural gas (LNG). According to the International Energy Association, the country has proven natural gas reserves of around 883 trillion cubic feet, with a reserve to production ratio of around 58 years. Qatar’s prudent investment in large scale LNG has contributed to one of the highest levels of GDP per capita in the world, estimated at $100,278 in 2013.
Benefiting from high energy prices and reasonably prudent fiscal management, the central government budget has been in surplus since the fiscal year that ended March 2001 (FYE 2001). The budget surplus is likely to have been at least 9% of GDP in FYE 2014, and is expected by CI to remain at high – albeit gradually declining – levels over the coming years, in view of lower hydrocarbon prices and large capital expenditures (estimated to be around 15% of GDP over the next five years). Gross government debt is moderate at an estimated 25.4% of GDP (65.8% of budget revenue) in FYE 2014 and partly reflects efforts to develop local debt markets.
The current account surplus is expected to be in the region of 25% of GDP in 2014 and is likely to maintain its double digit level over the medium-term, covering external debt falling due by a large margin and contributing to the accumulation of official foreign assets.
The Qatari government is a comfortable net external creditor, and sizeable foreign assets provide the country with the capacity to absorb mild external shocks and mitigate concentration risks arising from the dependence on hydrocarbons. At an estimated 75.6% of GDP or 106.2% of current account receipts (CARs) in 2014, external debt is high in comparison to most other Gulf Cooperation Council (GCC) countries. However, it is deemed to be within the repayment capacity of the economy in view of the substantial external assets of the government and private sector.
Economic concentration risk, fiscal rigidity and limited transparency continue to weigh on the sovereign’s ratings, despite recent reforms aimed at diversifying the economy and strengthening fiscal discipline. In addition, the country’s public institutional framework is still at relatively early stages of development, and fiscal transparency – while improving – is not high.
The Outlook for the ratings is ‘Stable’, meaning that the Qatar’s sovereign ratings are likely to remain unchanged over the next 12 months, provided that key metrics evolve as envisioned in CI’s baseline scenario and no other credit quality concerns arise.
The ‘Stable’ Outlook balances the strengths of the country’s fiscal and external positions against its institutional weaknesses, reliance on hydrocarbon revenues and susceptibility to exogenous factors stemming from protracted periods of subdued hydrocarbon prices or an increase in geopolitical risk factors.
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