Global credit rating agency Capital Intelligence (CI) has affirmed Qatar’s long-term foreign currency and local currency ratings of ‘AA-’ and its short-term foreign and local currency ratings of ‘A1+’, while upgrading the outlook for ratings to ‘stable’ from ‘negative’.
The outlook revision reflects the resilience of the Qatari economy to low hydrocarbon prices, as seen by the continuation of positive economic growth and maintenance of comfortable fiscal and external buffers, CI said, adding the revision also factored in its expectation of narrowing fiscal and external current account deficits in 2017-18.
The Qatari economy is expected to have grown by about 3.4% in 2016 against 3.3% a year ago, underpinned by a 6% expansion in non-hydrocarbon gross domestic product (GDP) and is slated to grow at a similar rate in 2017-18.
The public finances remain “manageable”, despite budget “deterioration”, it said, adding the budget is expected to have posted a deficit of 2.7% in 2016 against 1.2% surplus in 2015.
Assuming a modest rise in hydrocarbon prices in the short-to-intermediate term and government measures to rationalise public spending, CI expects the deficit to decline over the coming years.
Central government debt, which is “moderate” by international standards, is expected to increase to 60% of GDP from an estimated 46% in 2016. The Qatari government, which enjoys healthy access to the global markets, has increased external borrowing to bridge its fiscal deficit and support infrastructure projects without “pressurising” domestic liquidity, it stressed.
“However, the cost of borrowing is set to increase in the short-to-medium term in view of the expected tightening of the US monetary policy, as the Qatari riyal continues to be pegged to the US dollar,” it said.
Highlighting that the Qatari government remains a “comfortable” net external creditor and sizeable foreign assets enable it to absorb mild external shocks and mitigate concentration risks arising from hydrocarbons dependence, CI said the central bank’s foreign reserves remained at “healthy” levels in 2016 ($34.5bn) and fully cover short-term external debt on a remaining maturity basis.
At an estimated 130.7% of GDP (or 145.9% of current account receipts) external debt in 2016 is high in comparison to most other Gulf economies. Nevertheless, it is deemed to be within the repayment capacity of the economy in view of the substantial external assets of the government and the private sector, according to CI.
However, the ratings remain “constrained” by economic concentration risk and fiscal rigidity, notwithstanding recent reforms aimed at economic diversification. Besides, Qatar’s public institutional framework is still at relatively early development stages, and fiscal transparency – while improving – is not high, it said.