Fitch affirms Qatar’s rating at ‘AA-’ with stable outlook

Doha, Qatar

Fitch Ratings has affirmed Qatar’s long-term foreign-currency issuer default rating at ‘AA-’ with a stable outlook.

According to the rating agency, Qatar’s ‘AA-’ ratings are supported by large sovereign net foreign assets, one of the world’s highest ratios of GDP per capita, a flexible public finance structure and a favourable outlook for debt reduction.

A supportive oil and gas market outlook and strong estimated investment returns on Qatar’s foreign assets have offset the impact of rising contingent liabilities from the banking sector on Qatar’s credit profile, the report said.

The report said, “We forecast Qatar’s general government budget surplus at about 15 percent of GDP in 2022 including estimated investment income on government external assets. Oil and gas revenue will be sharply higher in 2022, under our assumption that the Brent oil price will average $100 per barrel, offsetting a bump in spending related to Qatar hosting the 2022 Football World Cup.

“Lower capital spending and tight control over current spending beyond 2022 should help maintain budget surpluses, which will be further boosted by an expansion of gas production from 2025. These forecasts imply a break-even Brent oil price of about $50 per barrel.”

Highlighting the falling debt ratio for Qatar, the report said, “We expect debt/GDP ratio to decline to about 67 percent in 2022 compared 81 percent in 2022 on the back of an expansion of nominal GDP due to higher oil and gas prices. The subsequent debt path will depend on how the government chooses to deploy its fiscal surpluses.”

“We expect that a return to fiscal surpluses and an expansion of hydrocarbon production will lead to debt reduction, and large usable public sector assets,” the report said.

Citing major gas expansion as a big positive for Qatar’s economy, the report said, “QatarEnergy plans to expand liquified natural gas (LNG) production capacity from 77 million tonnes per year (mtpa) to 110 mtpa by end-2025 and to 126 mtpa by 2027, an overall increase of 64 percent, and has taken the final investment decision for phase one. The expansion will yield substantial volumes of oil condensates and other by-products for export:

“Qatar’s importance in global energy markets is being magnified by Europe’s push to reduce its dependence on Russian gas, with Germany and Qatar recently reaching a gas supply deal and the European Commission recently closing an antitrust investigation into QatarEnergy,” it said.

About Qatar’s growth recovery, the report said, “We forecast GDP growth of 3.2 percent in 2022. Our forecast has non-oil growth rising to 5 percent this year reflecting the 2022 World Cup and the post-pandemic recovery. Hydrocarbon output will be broadly flat till 2025, reflecting Qatar’s mature oil fields and the fact that Qatar’s LNG facilities are operating near capacity. There could be some growth in gas output depending on the pace of local consumption; the recently-launched Barzan project will serve the local market.”

Regarding factors that could individually or collectively lead to a positive rating action upgrade, the report said, “A marked and sustained reduction in government debt to a level approaching the ‘AA’ median, for example as a result of a prolonged period of fiscal surpluses, combined with a reduction of the risks associated with large contingent liabilities.

“A substantial improvement in Qatar’s external balance sheet to a level more in line with the levels of ‘AA’ rated regional peers, for example through the build-up of sovereign assets in combination with increased transparency on investments and a reduction in the bank and another sector net external debt.”

“Improvement in structural factors such as reduction in hydrocarbon dependence and a strengthening in governance, while maintaining strong fiscal and external balance sheets will further substantiate Qatar’s position for an upgrade,” the report said.