In its update last night, Moody’s Investor Service said, “Qatar's credit profile reflects the government's strong balance sheet, vast hydrocarbon reserves and exceptionally high per capita income.
“These factors provide significant shock-absorption capacity and mitigate the vulnerability of government revenue to temporary declines in oil prices, such as the one caused by the coronavirus pandemic, as well as the economic and financial risks arising from Qatar's exposure to regional geopolitical tensions.”
Moody’s said, “The stable outlook reflects our assessment that Qatar’s credit metrics are likely to remain consistent with the Aa3 rating, even as oil prices remain subdued due to depressed global oil demand caused by the coronavirus pandemic. The stable outlook balances fiscal and economic risks stemming from the decline in oil prices with Qatar's very large fiscal and foreign currency reserve buffers in the form of sovereign wealth fund assets.”
On factors that could lead to an upgrade, Moody’s said, “A sustained and material reduction in external vulnerabilities through a decrease in external debt and a rebuilding of foreign exchange reserves would likely prompt an upgrade of the rating, especially if accompanied by greater transparency about the size and composition of the government’s financial assets.”
On factors that could lead to a downgrade, Moody’s noted, “An escalation of regional tensions or a significantly longer than anticipated shock to hydrocarbon demand that would threaten to disrupt Qatar’s hydrocarbon exports on a prolonged basis, put material pressure on the government’s financial position, including through a crystallization of wider public-sector liabilities on the government’s balance sheet, and lead to a significant erosion of external buffers, would likely lead us to downgrade the rating.”
An analyst said, “Given the current market conditions, this is a good rating as other markets in the region have been downgraded. Moody's affirmation of Qatar’s rating at ‘Aa3’ with a ‘stable’ outlook reaffirms the country’s economic resilience.”
Qatar is the world's leading exporter of liquefied natural gas (LNG), accounting for one-third of global LNG exports. At the current rate of production, its proven natural gas reserves would last for an estimated 130 years, Moody’s noted.
“Until recently, hydrocarbon production increases were limited by the self-imposed moratorium on the development of new natural gas projects in the North Field. However, the moratorium was lifted in April 2017, and based on the government's stated plans, we expect Qatar to increase its LNG production capacity by 40% - 60% during 2023-27, with first output from the new LNG trains coming on stream in 2025.
“This will boost Qatar's growth rate and nominal GDP in the medium term. However, the dominant role of the hydrocarbon sector, which accounted for more than a third of the nominal GDP in 2018, renders the economy vulnerable to declines in oil prices, which are the key driver of the value of Qatar's hydrocarbon production and exports,” Moody’s Investor Service noted.
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