Qatar’s high government debt and a relatively high share of foreign-currency debt is “mitigated by a credible” currency peg to the dollar, backed by its large external assets and the central bank’s foreign reserves, Moody’s Investor Service has said in an update.
Qatar’s ‘a1’ fiscal strength is above the initial score of ‘a3’, taking into account several considerations, it noted.
According to Moody’s, government revenue is mostly denominated in foreign currency, including budgetary hydrocarbon revenue and extra-budgetary investment income from offshore assets held by the Qatar Investment Authority.
Finally, entities included in its calculation of other non-financial public-sector debt have generally been profitable and the risk of their liabilities crystallising on the government’s balance sheet is likely to be lower than the headline number would suggest.
The national airline, Qatar Airways, which Moody’s expects to post losses as a result of the global coronavirus pandemic, has debt of only around 3% of GDP.
“This debt is dwarfed by the QIA assets, which we estimate to be close to 180% of GDP in 2019. Our assessment of Qatar’s fiscal strength is also based on the government’s prudent budgeting, which has yielded persistent fiscal surpluses in the past while also softening the negative fiscal impact during the periods of oil price declines,” Moody’s said.
The structural shift in the oil market since 2014 “eroded” Qatar’s hydrocarbon income, which led to a “significant fiscal deterioration” in 2015-17, highlighting the degree of vulnerability to such oil price declines.
“However, the fiscal breakeven oil price of around $55/barrel implied by the 2020 budget is lower than for most other GCC sovereigns and below our medium-term oil price assumptions,” Moody’s said.
The large assets accumulated during periods of high oil prices and managed by the sovereign wealth fund mostly offshore were available as a fiscal buffer since oil and gas prices fell in 2014, but the government has deliberately chosen debt financing over asset liquidation.
This led to more than a doubling of Qatar’s government debt between 2014 and 2019, Moody’s said.
“We estimate that some of this additional borrowing was used to inject equity into the Qatar Central Bank and helped to boost its foreign currency reserves during 2014-15 and in 2018,” Moody’s noted.