Qatar affirmed at AA

Standard & Poor’s (S&P) said on 2 September that it is affirming its rating of Qatar at AA/A-1+.
“The stable outlook reflects our view that Qatar’s economy will remain resilient,
although we anticipate continued institutional weaknesses and an only moderate
increase in hydrocarbon prices over the next two years,” S&P said.
Qatar is a wealthy economy,” S&P said “The country holds the third-largest proven natural gas
reserves in the world, and is the largest exporter of liquefied natural gas (LNG).”
“Falling oil and gas prices and the government’s public investment program have led
to a deterioration of the fiscal balance, beginning in 2014,” S&P said. “We expect the general
government balance to average a deficit of about 5 per cent of GDP in 2016-2019, after many years of surpluses. Our outlook assumes that the sharp drop in hydrocarbon revenues will be somewhat offset by cuts in current spending, which was reduced by 9.5 per cent in 2015 and is expected to fall further in 2016 as line ministries are closed or
merged, slow moving projects are scrapped, subsidies removed, and certain taxes introduced, including an increase in stamp duty.”
Capital spending will likely continue to slightly increase as infrastructure projects advance.
S&P said it expects a further decline in government hydrocarbon income, namely in the financial transfers from Qatar Petroleum, which come to the government budget with a
six-month lag.
“(The) government will finance fiscal deficits through debt, both on the domestic and international markets, rather than by drawing upon its assets at Qatar Investment Authority (QIA), which are designated for future generations and not intended as a stabilization tool,” S&P said. “(We) expect that gross debt will increase to nearly 50 per cent of GDP over the next few years, but actually decline on a net basis.”
“We project Qatar’s external surpluses will worsen substantially in the medium term
as export receipts fall sharply in 2016, while import demand will remain strong;
however, 2015 data show current account performance to be better than we had
previously expected, likely linked to the lag effect of falling prices feeding
through long-standing contracts,” S&P said. “The transfer and income accounts of the current account will likely remain in deficit, the former due to remittance outflows as a
result of the expatriate population and the latter due to payments to the foreign
firms that partner with Qatari companies in the oil and gas industry. We expect that
foreign reserves will fall over the next year as net portfolio outflows, linked to
QIA’s activities, are likely to remain strong thereby keeping the financial account
in deficit.”

Full coverage of Middle East business, see MEED.