Qatar's “exceptionally high per-capita income and proved hydrocarbon reserves” are among key credit strengths that underpin the sovereign's resilience to large economic and fiscal shocks, says Moody's, which recently affirmed Qatar's Aa3 rating, with a stable outlook.
The rating affirmation is supported by a number of strengths embedded in Qatar's credit profile, which underpin the sovereign's resilience to shocks, including the current shock triggered by the coronavirus pandemic and lower global oil prices.
In particular, these strengths include Qatar's exceptionally high level of per-capita income,
Global ratings agency recently affirmed Qatar's Aa3 rating with a stable outlook
its very large hydrocarbon reserves with low extraction costs, the government's very robust net asset position, and an established track record of macroeconomic policy effectiveness.
The affirmation also reflects Moody's expectation that over the next few years the government will reduce its debt burden below 50% of GDP from an estimated peak of around 68% of GDP (in 2020) through the combination of announced fiscal consolidation measures and a planned debt reduction exercise, which will draw on the government's accumulated contingency reserves.
The stable outlook balances “elevated” regional geopolitical risks and the risk that an “extended period of depressed” oil prices delays the anticipated reversal of the weakening in government debt and debt affordability metrics against the potential fiscal and economic upside stemming from the planned expansion of the liquefied natural gas (LNG) production capacity.
Qatar's Aa3 rating is supported by several key credit strengths that underpin the sovereign's resilience to large economic and fiscal shocks such as the one imposed this year by the coronavirus pandemic. These strengths include Qatar's exceptionally high per-capita income and proven hydrocarbon reserves, which will buffer its economic strength even if non-hydrocarbon sector growth remains relatively weak in the coming years; its access to robust contingency financial buffers, which significantly exceed the level of government debt; and its capacity and policy flexibility to reverse, over the medium term, the recent weakening of government debt and debt affordability metrics.
However, Moody's expects Qatar's economy to contract by 3.5% this year, largely due to the impact of the pandemic and government spending cuts on the non-hydrocarbon sector, whereas the decline in nominal GDP will be nearly four times as large, being magnified by the decline in oil prices.
Moreover, Qatar's growth will likely remain subdued in the medium term, averaging 1.5%-2% until 2024. While this is higher than the 1% annual growth rate recorded during 2017-19, it is significantly lower than the 3.8% annual average during the previous five years when non-hydrocarbon sector growth benefited from strong government spending growth.
Nevertheless, Moody’s noted Qatar's exceptionally high per-capita income level, which was $132,886 in 2019 on a purchasing power parity (PPP) basis, and the sovereign's extraordinary natural resource wealth provide an “effective mitigant” to a period of subdued growth.
Qatar's “relatively weak” growth outlook is also mitigated by its very high level of proved hydrocarbon reserves, which will ensure that Qatar would be able to produce natural gas and crude oil at around the current rate for more than another 100 years.
Qatar's very low natural gas extraction and LNG production costs, which Moody's estimates to be among the “lowest globally” at around $2 per million British thermal units, give it a “uniquely competitive position” in the global natural gas market, where it is the largest LNG exporter, and position it well against the potential longer-term impact of carbon transition of demand and prices of fossil fuels.