In its latest credit note, the international rating agency said the government intends to reduce its overall debt-to-GDP ratio, repaying its maturing external debt.
"We expect the government's debt-repayment strategy to reduce total general government debt to 30% of GDP by 2026, from 46% in 2022," it said.
The government's strategy of paying off maturing external debt has reduced debt-servicing costs to below 5% of general government revenue, it noted.
Higher gas production related to the NFE or North Field Expansion, expected to come on-stream from end-2025, should further increase Qatar’s government revenue, it said.
Highlighting that the country's strong general government net asset position remains credit strength; S&P said "we expect it to increase over the period to 2026, supported by investment returns on Qatar's sovereign wealth fund, Qatar Investment Authority (QIA)."
Averaging about 140% of GDP in 2023-26, the government's large liquid assets provide it with a strong buffer to mitigate the effects of external or financial shocks, it said.
The government's net asset position "will remain a rating strength", averaging 103% of GDP over 2023-26, the rating agency added.
S&P projected that the current account will maintain a surplus of about 20% of GDP on average over 2023-26, in line with its hydrocarbon production and price assumptions.
"The high level of assets accumulated within the sovereign wealth fund, the QIA, will continue to support Qatar's strong external position," the rating agency said.
It estimated that, on average, Qatar's external liquid assets will surpass external debt by about 70% of current account payments in 2023-26.
Despite the strong aggregate external position, Qatar stands out in the GCC as having a "significant" amount of net external banking sector liabilities, mainly divided between short-term non-resident deposits and, more recently interbank liabilities, which keep external financing needs high.
Qatar ran current account surpluses over 2017-2019, but at the same time, materially increased the level of external debt in the economy to fund infrastructure investment within the country, according S&P.
Nevertheless, it noted that banking sector external liabilities declined "significantly" over 2022, prompted by Qatar Central Bank (QCB) regulatory directives.
"At $60bn, foreign interbank liabilities now constitute the largest portion of bank foreign liabilities and, since end-2021, have increased by about half the amount that non-resident deposits have fallen. Still, we expect a continued regulatory push to further reduce the shorter-term external debt of the banking system particularly as credit growth slows in line with weaker economic activity," it said.