Qatar's A3 ratings and stable outlook are supported by the country's economic development strategy based on diversification away from oil together with a relatively ambitious privatization program, says Moody's Investors Service in its annual credit report on Qatar.
Qatar possesses the world's second-largest gas reserve, and the government's commitment to increasing the contribution of liquefied natural gas (LNG) to the country's gross domestic product (GDP) is paying dividends, stated Moody's. LNG revenue is expected to rise steadily, to catch up with oil revenues in a few years time, the rating agency notes.
The government has signed several long-term supply agreements including the Dolphin project that will pipe gas to the United Arab Emirates (UAE) and Oman. "OPEC quotas do not restrict gas production," explains a Moody's AVP/Analyst and author of the report, Bernard Musyck. "Qatar is also playing a leading role in developing the evolving technology of gas-to-liquid (GTL)," the analyst adds.
In addition, several government-owned companies have been privatized, including power and water desalination plants. "The philosophy behind the privatization process is the creation of new opportunities in the private sector, which has traditionally been dominated by a narrow economic basis comprising trade and real estate," Musyck explains.
Qatar is playing an important role in the US military action against Iraq, and in return the increased US army presence provides for its external security needs. "This arrangement will also allow the country to reduce its own military funding in the long run, and will contribute to an improved climate for foreign direct investment," says Musyck.
Qatar has enjoyed a budget surplus since 2001, after several years of budget deficits, says Moody's. Fiscal management has generally been prudent and the borrowing requirements of the government have been modest relative to the growth performance of the economy. On the spending side, the government plans to reform the generous welfare system which is currently in place by gradually replacing the subsidies on water and electricity consumption with government grants to poorer families. A national pension scheme is also being considered.
"It is not clear however, whether the government will manage to implement such policies, given that Qataris are accustomed to generous welfare provision, and that charges for utilities based on cost will be unpopular," says Musyck. On the revenue side, the government is committed to the gradual introduction of a modern tax system based on taxes on consumption and profits.
Moody's notes that in early 2003, Qatar's total direct government debt, internal and external, amounted to $9.2 billion or 48.9 percent of GDP. The level of the debt peaked in 1999 at 58 percent and is now expected to decline. In most cases the borrowings are directly linked to the projected export earnings of the borrowing entities.
"Qatar's philosophy is to continue to have a (rolling) debt, new projects replacing older projects financed with external funds, as long as market conditions make this option viable," Musyck concludes. This report is a yearly update to the markets and is not a formal action to alter the credit rating of an issuer. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
