Qatar's strong external sovereign assets to cushion low-for-longer oil, gas prices: CI
July 26 2020 08:18 PM
Ras Laffan Industrial City
This file photo taken on February 6, 2017 shows the Ras Laffan Industrial City, Qatar's principal site for production of liquefied natural gas and gas-to-liquids, some 80km north of Doha. Qatar’s ratings benefit from very large hydrocarbon reserves and associated export capacity, which in turn provides the government with substantial financial means, according to CI.

Qatar's strong external sovereign assets and high degree of expenditure flexibility will give it a larger fiscal leeway to adjust for a potential low-for-longer hydrocarbon price scenario, according to Capital Intelligence (CI), an international credit rating agency.
Although the Covid-19-related sharp decline in oil and gas prices is weighing on Qatar’s public and external finances, the rating agency continues to view fiscal and external strength as strong due to large external government assets.
CI forecasts the government budget and the current account balances to register deficits of 2.5% and 3.8% of GDP (gross domestic product) in 2020, respectively, as the recent slump in global energy demand has lowered hydrocarbon export revenues markedly.
"The deterioration in fiscal and external balances, however, is less pronounced in Qatar than in other Gulf Cooperation Council (GCC) countries since it is not obliged to implement the recent very large Opec+ oil production cuts, and seeks to keep LNG (liquefied natural gas) export volumes stable," it said.
Moreover, a large share of government expenditure falls upon discretionary spending items such as public investment, and the relative size of the public wage bill is much smaller than in more populous GCC countries, it said, affirming the country's rating with "stable" outlook.
The outlook indicates that the ratings are likely to remain unchanged over the next 12 months and balances the projected deterioration in the government’s budget and current account balances against sizeable fiscal and external buffers.
Qatar’s ratings benefit from very large hydrocarbon reserves and associated export capacity, which in turn provides the government with substantial financial means, as the country commands over 1.5% of global oil and 12.9% of global gas reserves.
Given large hydrocarbon exports and a rather small population, GDP per capita stood at an extremely high $66,541 in 2019.
Finding that public and external finances are supported by large sovereign external assets; it said the government registered substantial budgetary surpluses over the past two decades (2000-19 average: 8.1% of GDP), a large part of which has been invested in liquid external assets.
The International Monetary Fund estimates the assets of Qatar Investment Authority (QIA) to be very high of $320bn (167% of GDP) in 2018.
Although the assessment of QIA assets is complicated by limited transparency on asset allocation, CI considers their very large overall size as an important rating strength.
While government debt is still moderate, the government is exposed to substantial contingent liabilities, it said, adding the sovereign debt amounted to 55.4% of GDP at end-2019 and is forecast to increase to 68.8% at end-2020 due to a $10bn international bond issue in April 2020 and its expectation that nominal GDP to contract significantly this year.
CI forecasts real GDP to contract by 2.9% in 2020, driven by a 5% decline in non-hydrocarbon GDP. The recent Covid-19 containment measures contributed to a slump in economic activity in several non-hydrocarbon sectors (tourism, construction, trade and manufacturing) over the past months.
While its baseline scenario projects a gradual recovery of non-hydrocarbon activity in the second half of 2020 as containment measures are gradually lifted, the agency said "we expect growth to continue to be constrained by subdued external demand for several goods and services exports (tourism and manufacturing)."

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