Fitch Ratings has affirmed Qatar's long-term foreign-currency issuer default rating (IDR) at 'AA-' with a stable outlook.
Qatar's 'AA-' ratings, Fitch said, “reflect a strong sovereign net foreign asset position, one of the world's highest ratios of GDP per capita and a flexible public finance structure allowing for favourable debt dynamics and a robust response to “limit the fiscal impact” of the coronavirus pandemic.
Fitch said it expects “weaker hydrocarbon revenue and disruptions” to non-hydrocarbon income as a result of the coronavirus pandemic will lead to low-single-digit deficits in 2020-2021, after surpluses in 2018-2019.
The authorities have cut budgeted spending by 16% for the year mainly by postponing some non-essential development projects to beyond the 2022 World Cup.
The bulk of Qatar's gas exports are sold under long-term (oil-linked) contracts, and around half the hydrocarbon revenue received in 2020 relates to 2019, “limiting the drop” in hydrocarbon revenue to 27% in 2020, and leading to a decline of 9% in 2021.
“We estimate that Qatar's fiscal break-even oil price will average $48/b in 2019-2021.”
“We expect the non-hydrocarbon sector to contract by 5% in 2020 (for overall GDP contraction of 3.8%) reflecting a strict lockdown in response to the coronavirus in the second and third quarters of the year, after non-hydrocarbon growth of 1.3% in 2019 (overall GDP -0.2%).” Fitch noted, “The government and Qatar Central Bank (QCB) are implementing a QR75bn (over 10% of GDP) stimulus package, mainly consisting of liquidity injections by the QCB, stock market investments by government funds, support to businesses through loans and guarantees by Qatar Development Bank, and postponement and suspension of fees and taxes by the government.”
The rating agency expects government debt/GDP to fall to 59% by 2021, from 68% of GDP ($126bn) in 2019, including domestic T-bills and overdrafts with local banks.
The government has indicated recently that it intends to repay $20bn in debt by 2021, including over $10bn in 2020, on top of scheduled maturities.
This will be funded by Ministry of Finance (MoF) reserves built up through $34bn in eurobond issuances over the past three years.
The government's strong overall asset position mitigates some of the risks from contingent liabilities.
Fitch estimates that sovereign net foreign assets (reserves plus other government assets less external debt) rose to 130% of GDP ($239bn) in 2019 from 105% of GDP in 2018, largely reflecting the estimated assets of the QIA, which were “buoyed by strong” asset market returns.
“We expect that the government would be able to obtain significant liquidity from these assets if the need arose, for example in case of a systemic loss of confidence in the banking sector.
The QCB's reserves also rose to nearly $40bn or five months of current external payments in 2019 on the back of a modest current account surplus, from over $30bn in 2018.
The financial market downturn likely created valuation losses for QIA in early 2020 but conditions have since improved.”
According to Fitch, the expansion of LNG production could deliver sizeable improvements to Qatar's public finances in the long term.
QP intends to add 49mn tonnes per year (1.9mn barrels of oil equivalent per day) of LNG production from its North Field by 2027, a 64% increase over current capacity of 77mn tonnes.
“The selection of international partners for the expansion has been postponed until end-2020, but QP is proceeding with engineering and design work and has acquired options for the construction of 100 LNG tankers for $20bn,” Fitch noted.
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