S&P affirms Qatar ratings, maintains ‘stable outlook’
May 11 2019 11:42 PM
Qatar is among the seven sovereigns whose assets exceed 100% of GDP and rated by S&P
Qatar is among the seven sovereigns whose assets exceed 100% of GDP and rated by S&P

*Country 'will continue to effectively mitigate economic,and financial fallout of blockade'

S&P Global Ratings has affirmed Qatar’s sovereign ratings with a “stable outlook”, primarily reflecting its view that the country will continue to “effectively mitigate” the economic and financial fallout of the ongoing blockade.

Qatar, S&P said, “will continue to pursue prudent macroeconomic policies” that support large recurrent fiscal and external surpluses over 2019-2022.

Investments related to the government's sizable infrastructure programme will continue to support the country’s economic activity, outweighing negative sentiment related to the blockade imposed on Qatar by a quartet of Arab nations.

Qatar's financial system, S&P noted, is “well capitalised and has displayed resilience” through the blockade, with additional “confidence-instilling” support from the authorities.

In its ratings summary released yesterday, S&P cited that “increasing non-resident deposits demonstrated strengthening investor confidence in the financial sector."

But, it said, the largely short-term external funding “worsens” Qatar's external liquidity position.

S&P projects a current account surplus averaging 4.5% of Qatar’s GDP in 2019-2022, assuming lower hydrocarbon prices from 2021.

“The government's assets will likely remain a core rating strength,” the ratings agency noted.

S&P believes the Qatari authorities have “sufficient resources to continue managing the consequences” of the blockade. In its view, the impact of the boycott on Qatar's external performance has been limited; most of its export earnings from gas come from Asian customers.

“We project Qatar will continue to generate surpluses in its budgetary and external accounts over our 2019-2022 rating horizon. We do not expect Qatari banks will need additional government support after liquidity injections of about $40bn from the Qatar Central Bank (QCB) and other public sector entities, mainly Qatar Investment Authority (QIA),” S&P noted.

Despite temporary blockade-related setbacks, 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.

S&P forecasts that Qatar's net creditor position will increase by 5% of GDP per year on average through 2022.

The ratings agency expects economic growth will remain relatively steady at 2% to 2.5% in 2019-2022.

The government plans to increase gas exports by about 40% to 110mn tonnes annually (approximately 987mn barrels of oil equivalent) by 2023-2024.

Until then, S&P growth assumptions factor in broadly stable gas production, cautious business activity and confidence, and reduced private sector consumption.

The government's infrastructure programme remains supportive of economic growth, as does investment related to expansion of the North Field gas project.

At an estimated 45% of GDP, about one-third of which is public sector funded, Qatar's investment spending is among the highest of all the sovereigns S&P rates.

“In contrast, more recent indicators suggest that economic activity in Qatar was moderate in 2018, when we estimate growth at 1.5%. This compares with S&P expectation of 2.8% growth in the last review. The slower pace was mainly due to a contraction of the hydrocarbons sector by about 2% over the same period.”

However, S&P noted the sectors of Qatar's economy affected by the blockade, namely tourism, real estate, and construction are starting to show weakening asset-quality metrics, specifically in ‘Stage 2’ loans.

As a result, it expects asset quality in the Qatari banking system to “deteriorate and credit losses to increase” in 2019.

Nevertheless, S&P believes the impact will be “manageable, followed by stabilisation” in 2020.

"The Qatari banks' strong capital generation and funding profiles, backed by public sector deposits, should further support the banking system,” S&P said.

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