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Fitch Ratings has upgraded Qatar’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘AA’ from ‘AA-’. The outlook is stable.
Key rating drivers
Rating upgraded to ‘AA’:
The upgrade reflects Fitch’s greater confidence that debt to GDP will remain in line with or below the ‘AA’ peer median after falling sharply in recent years, while Qatar’s external balance sheet will strengthen from an already strong level. Qatar is likely to retain budget surpluses until the 2030s a result of the North Field expansion.
Qatar’s ‘AA’ ratings are supported by large sovereign net foreign assets (SNFA), one of the world’s highest ratios of GDP per capita and a flexible public finance structure. Rating weaknesses include heavy hydrocarbon dependence and below average scores on some measures of governance, higher government debt/GDP than oil-dependent highly-rated peers and substantial contingent liabilities.
Sustained fiscal
surpluses:
We forecast Qatar’s general government (GG) budget surplus at 8.6 percent of GDP in 2024 (2023: 9.3 percent of GDP), including our estimates of investment income on Qatar Investment Authority (QIA) external assets (5.2 percent without investment income in 2024). Oil and gas revenue will only marginally drop under our assumption that the Brent oil price will average $ 80/bbl in 2024 (2023: 82). We expect a budget surplus of 6.2 percent in 2025, despite lower hydrocarbon prices (Brent: $70/bbl).
We project the first phase of the North Field expansion to start supporting fiscal revenue fully from 2026 and phase two in 2027, assuming no construction delays, and to bring down Qatar’s fiscal breakeven oil price to $50/bbl in 2027 from around $ 64/bbl in 2024, excluding estimated QIA investment income (to $41/bbl from $54/bbl including investment income). This reflects our expectation that new spending commitments will amount to a modest fraction of the new liquefied natural gas (LNG) revenue. Qatar’s spending plans on economic diversification are more modest than regional peers.
LNG ambitions on track and expanded:
Qatar Energy (QE) plans to expand LNG production capacity from 77 million tonnes per year (mtpa) to 110 mtpa by end-2025, 126 mtpa by end-2027 and announced a further expansion to 142 mtpa by end-2030. We assume that QE will cover $12.5 billion of core project costs out of its 2021 bond issuance and a similar amount from its cash flow, spread until 2028, on top of contributions by partners. Funding plans for the 2030 phase will depend on hydrocarbon prices at that time. North Field projects will support both hydrocarbon and non-hydrocarbon growth over 2025-2030.
QE will also cover a significant share of the costs of the ancillary projects associated with the expansion, including downstream plants that will brings its petrochemical capacity to over 15mtpa. QE owns 70 percent of the Golden Pass LNG project (16mtpa) in Texas, which will start production in 2024, bringing new revenue to the budget via QE dividends.
Government debt declining:
We project debt/GDP to fall to about 47 percent of GDP in 2024 and 45 percent in 2025, from a peak of 85 percent in 2020. This reflects our expectation that the government will continue to repay maturing external debt in 2024 ($4.8 billion) but is likely to refinance its $2 billion 2025 maturity in 2024, and will gradually pay down some of its domestic debt. Budget surpluses will still allow Qatar to transfer new funds to the QIA.
The subsequent debt path will depend on how the government chooses to deploy its fiscal surpluses. The persistence of a high global bond yield environment could encourage Qatar to continue to allocate a share of its surpluses to deleveraging beyond 2025, although our baseline assumes that external debt is rolled over. Our debt metrics include government overdrafts with local banks (QAR48 billion at end-2023), which the government does not include in its headline figure.
Banks represent contingent liability:
Qatar’s banking sector is large with assets of 255 percent of GDP and net foreign liabilities of over $105billion (50 percent of GDP) in 2023. Following the central bank’s introduction of measures increasing the cost for banks of short-term foreign financing, banks’ gross foreign liabilities declined to $181 billion at end-2023 or close to 33 percent of total assets, from $197 billion at end-2021.
The sovereign has a record of supporting the sector. In the event of loss of confidence by non-resident depositors and investors, the government could be forced to repatriate foreign assets to support banks, with negative implications for the sovereign’s own external balance sheet. We estimate the debt of non-bank government-related entities at over 30 percent of GDP, with limited risk of materialisation.
Large sovereign
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We estimate that SNFA/GDP rose to 176 percent ($375 billion) in 2023 from 123 percent ($291 billion) in 2022. This reflects the drop in nominal GDP, a sharp rise in the QIA’s estimated assets, which we assume were buoyed by asset market returns. SNFA stand to rise amid fiscal surpluses until the end of the decade, although they remain vulnerable to financial market fluctuations.
We estimate that Qatar’s economy became a net external creditor at 17 percent of GDP at end-2023 (total net asset positions are much stronger given our estimate of QIA equity holdings). Qatar had been a net external debtor since 2018 in contrast to ‘AA’ rated peers and in particular highly-rated GCC hydrocarbon exporters.
Regional stability risks:
Qatar has broadly normalised its relations with the GCC in recent years, although points of tensions remain. Qatar continues to position itself as a mediator in relations between Western powers and Iran and Hamas, among others.
The Israel-Gaza war has caused an increase in regional instability. Qatar has not been directly affected so far, but risks of escalation persist from the ongoing conflict in Gaza, the involvement of the Houthis from Yemen in disrupting Red Sea transit, the activity of other groups with links to Iran and US reprisals against these groups in Yemen, Iraq and Syria.
ESG - governance:
Qatar has an ESG Relevance Score (RS) of ‘5[+]’ for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Qatar has a medium WBGI ranking at the 70th percentile.