Qatar's credit profile will remain resilient, supported by its wealthy economy and strong government and external net asset positions, according to Standard & Poor's (S&P), an international credit rating agency.
Despite the sharp Covid-19-induced decline in economic activity and low hydrocarbon prices, income levels in Qatar remain among the highest of rated sovereigns, supporting its strong credit profile, S&P said in its latest report.
High gross domestic product (GDP) per capita, rebounding to an average of $61,600 in 2021-23 from a low of $56,500 in 2020, would mitigate the effect of weak trend growth expected over the forecast horizon, it said.
"We expect the rebound to be linked to increased hydrocarbon prices and gradually abating effects of the pandemic," the rating agency said.
Despite its expectation of current account deficits through 2021, Qatar's external balance sheet remains strong, with liquid external assets continuing to offset the country's stock of external debt by a "sizable" margin, it said.
"We expect the government will provide extraordinary liquidity support to the banking system in case of sudden reversals in capital flows related to nonresident funding," it said.
Despite low oil prices, Doha is slated to continue to generate surpluses in budgetary accounts on the general government level, S&P said, adding the country's strong general government net asset position remains credit strength.
The government's large liquid financial assets, averaging about 185% of GDP in 2021-23, provide it with a strong buffer during economic and financial shocks, it said.
On the continued boycott of Qatar by the quartet, S&P said it does "not expect this to significantly affect" the Qatari economy in the base-case scenario, given its very strong gas exports largely to outside the region.
Despite liquidity challenges in the international capital markets, nonresident funding (including deposits and interbank placements) to Qatar's financial sector have been only "marginally" affected, according to S&P.
After some outflows in second-quarter 2020, the banks' foreign liabilities resumed their rise and exceeded 100% of GDP in September.
"We understand the tenor of this funding has increased and the share of nonresident deposits maturing beyond 12 months is estimated at above 50%," it said.
Nevertheless, the relatively short-term maturity profile of foreign liabilities weighs on its assessment of Qatar's external liquidity position, according to the rating agency.
Foreseeing the government's net asset position to remain a rating strength, it said "we expect the net asset position to average 125% of GDP over 2020-23. We understand that the government intends to repay about $20bn in state debt in 2020-21, including over $10bn this year.
This will be funded through the Ministry of Finance's cash balances in the contingency reserve account, accumulated largely from the proceeds of the Eurobond issuances over the past three years," S&P said.
Despite limited budget financing needs, Qatar raised about $34bn from external borrowing in 2018-20.
"Considering the debt repayment exercise and our expectation of limited fiscal deficits at the central government level, we project that government debt will fall to about 58% of GDP by end-2023 from an estimated 73% in 2020," S&P said.
The Qatar Central Bank reduced the deposit and repo interest rates twice in March by a cumulative 100 basis points, following the cut in the US Federal Reserve's key policy rate.
"We expect Qatar to continue tracking the US monetary policy cycle, given its currency's peg to the US dollar. Despite limited monetary policy flexibility due to the peg regime, authorities have reiterated their commitment to the system. The peg is supported by the sizeable pool of external assets available to protect it if needed," it said.