International rating agency ‘S&P Global Ratings’ on Sunday announced that it has affirmed its ‘AA-/A-1+’ long- and short-term foreign and local currency sovereign credit ratings on Qatar with a stable outlook.
“The stable outlook indicates our view of broadly balanced risks to the ratings. Despite a sharp economic contraction and low hydrocarbon prices, we don’t expect the government’s fiscal and external stock positions will materially deteriorate beyond our expectations. We expect a timely policy response from the government in the context of continued liquidity challenges in the international capital markets,” S&P said in a report on Qatar.
Despite the sharp decline in economic activity associated with the COVID-19 pandemic and low hydrocarbon prices, S&P said, income levels in Qatar remain among the highest of rated sovereigns, supporting its strong credit profile.
“High GDP per capita, rebounding to an average of $66,500 in 2021-2023 from a low of $55,700 in 2020, will mitigate the effect of weak trend growth expected throughout the forecast horizon. We expect the rebound to be linked with an increase in hydrocarbon prices,” the report said.
“We project Qatar will continue to generate surpluses in its budgetary accounts on the general government level from 2021. The country’s strong general-government net asset position remains a credit strength. The government’s large liquid financial assets, averaging about 177 percent of GDP in 2021-2023, provide it with a strong buffer during economic and financial shocks,” the report said.
Despite current account deficits through 2021, the report said, Qatar’s external balance sheet remains strong, with liquid external assets continuing to offset the country’s stock of external debt by a sizable margin.
“We expect the government will provide extraordinary liquidity support to the banking system, in case of sudden reversals in capital flows related to non-resident funding,” it said.
Amid rising shocks from the COVID-19 pandemic and low oil prices, S&P said, “We now expect that Qatar’s growth will remain soft through 2023 as public spending will gradually taper off, weighing on economic activity in construction and associated sectors.”
“As the COVID-19 pandemic escalates against a backdrop of volatile markets and rising credit stress, we now forecast a global recession this year with 2020 global GDP contracting 2.4 percent. The global pandemic will also exert significant pressure on Qatar’s growth by weakening domestic consumption and investment,” it said.
“We expect economic growth will remain below the historical average, falling to about 1.3 percent through 2023. Gas output from the Barzan project will have only a marginal effect on growth in part because of insufficient domestic demand for its full capacity in the initial years as the project focuses on the domestic market,” the report said.
“The government plans to increase liquefied natural gas production by about 64 percent to 126 million tons annually (approximately 3.1 million barrels per day of oil equivalent) from 2025 through 2027. Until then, our growth assumptions factor in broadly stable gas production and moderate expansion in manufacturing, including heavy downstream activities, “it said.
At an estimated 50 percent of GDP, about one-third of which is public-sector funded, Qatar’s investment spending remains among the highest of all the sovereigns we rate.
“The government is bringing in structural reforms to diversify Qatar’s Qatar’s economy and reduce its dependence on hydrocarbons. The reform agenda pertains to the overall business environment, labour law, real estate market liberalization, increased foreign ownership limits, and public-private partnerships. In our view, despite taking time to materialize, these reforms could gradually increase Qatar’s long-term growth potential,” it said.
“In our base-case scenario, although the boycott of Qatar by Saudi Arabia, Bahrain, Egypt, and the UAE could continue for some time, we do not expect this to significantly affect the Qatari economy, given its very strong gas exports largely to markets outside the region,” 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. We project an oil price of $30 per barrel in 2020 and expect the current account balance to record a deficit of about 3.5 percent of GDP on average in 2020-2021,” it said.
A sharp fall in current account receipts will be partially offset by reduced import bills for capital and consumer goods associated with lower domestic investment and private consumption amid the COVID-19 pandemic, the report said adding, “In the remainder of the forecast horizon through 2023, we project external balances to revert to a surplus of about 3 percent of GDP supported by relatively high oil prices.”
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