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Satyendra Pathak
Doha
Fitch Ratings on Wednesday announced that it has affirmed Qatar's long-term foreign-currency Issuer Default Rating (IDR) at 'AA-' with a stable outlook.
The rating agency said that Qatar's 'AA-' rating reflects a strong sovereign net foreign asset position, one of the world's highest ratios of GDP per capita and a flexible public finance structure allowing for favourable debt dynamics and a robust response to limit the fiscal impact of the coronavirus pandemic.
“These strengths are balanced against a high level of debt and exceptionally high contingent liabilities compared with rated peers, heavy hydrocarbon dependence and mediocre scores on measures of governance and doing business,” Fitch said.
To limit the fiscal impact of coronavirus, the rating agency said, “Qatar’s government and Qatar Central Bank (QCB) are implementing a QR75 billion stimulus package mainly consisting of liquidity injections by the QCB, stock market investments by government funds, support to businesses through loans and guarantees by Qatar Development Bank and postponement and suspension of fees and taxes by the government. We estimate that only around 1-2 percent of GDP of the stimulus package is budgetary, and this will be offset by spending cuts elsewhere.”
Qatar’s large external assets and the central bank’s foreign reserves put the country in a strong position to deal with any crisis, Fitch said adding the government’s strong overall asset position mitigates some of the risks from contingent liabilities.
“We estimate that sovereign net foreign assets rose to 130 percent of GDP in 2019 from 105 percent of GDP in 2018, largely reflecting the estimated assets of the Qatar Investment Authority (QIA), which were buoyed by strong asset market returns,” it said.
“We expect that the government would be able to obtain significant liquidity from these assets if the need arose, for example in the case of a systemic loss of confidence in the banking sector. The QCB's reserves also rose to nearly $40 billion or five months of current external payments in 2019 on the back of a modest current account surplus, from over $30 billion in 2018. The financial market downturn likely created valuation losses for QIA in early 2020 but conditions have since improved,” the rating agency said.
“Expansion of LNG production could deliver sizeable improvements to Qatar's public finances in the long term. Qatar Petroleum (QP) intends to add 49 million tonnes per year (1.9 million barrels of oil equivalent per day) of LNG production from its North Field by 2027, a 64 percent increase over the current capacity of 77 million tonnes,” it said.
“While we assume that the project will reduce QP's cash flow to the state by around $25 billion spread over 2022-2028, the additional LNG production could ultimately result in more than $20 billion per year of additional hydrocarbon revenue to the government after wind-down of QP capital spending and assuming some of the project costs are covered by debt and international partners.QP is proceeding with engineering and design work and has acquired options for the construction of 100 LNG tankers for $20 billion,” it said.
The rating agency, however, noted that weaker hydrocarbon revenue and disruptions to non-hydrocarbon income as a result of the coronavirus pandemic will lead to alow-single-digit deficits in 2020-2021 after surpluses in 2018-2019.
Doha
Fitch Ratings on Wednesday announced that it has affirmed Qatar's long-term foreign-currency Issuer Default Rating (IDR) at 'AA-' with a stable outlook.
The rating agency said that Qatar's 'AA-' rating reflects a strong sovereign net foreign asset position, one of the world's highest ratios of GDP per capita and a flexible public finance structure allowing for favourable debt dynamics and a robust response to limit the fiscal impact of the coronavirus pandemic.
“These strengths are balanced against a high level of debt and exceptionally high contingent liabilities compared with rated peers, heavy hydrocarbon dependence and mediocre scores on measures of governance and doing business,” Fitch said.
To limit the fiscal impact of coronavirus, the rating agency said, “Qatar’s government and Qatar Central Bank (QCB) are implementing a QR75 billion stimulus package mainly consisting of liquidity injections by the QCB, stock market investments by government funds, support to businesses through loans and guarantees by Qatar Development Bank and postponement and suspension of fees and taxes by the government. We estimate that only around 1-2 percent of GDP of the stimulus package is budgetary, and this will be offset by spending cuts elsewhere.”
Qatar’s large external assets and the central bank’s foreign reserves put the country in a strong position to deal with any crisis, Fitch said adding the government’s strong overall asset position mitigates some of the risks from contingent liabilities.
“We estimate that sovereign net foreign assets rose to 130 percent of GDP in 2019 from 105 percent of GDP in 2018, largely reflecting the estimated assets of the Qatar Investment Authority (QIA), which were buoyed by strong asset market returns,” it said.
“We expect that the government would be able to obtain significant liquidity from these assets if the need arose, for example in the case of a systemic loss of confidence in the banking sector. The QCB's reserves also rose to nearly $40 billion or five months of current external payments in 2019 on the back of a modest current account surplus, from over $30 billion in 2018. The financial market downturn likely created valuation losses for QIA in early 2020 but conditions have since improved,” the rating agency said.
“Expansion of LNG production could deliver sizeable improvements to Qatar's public finances in the long term. Qatar Petroleum (QP) intends to add 49 million tonnes per year (1.9 million barrels of oil equivalent per day) of LNG production from its North Field by 2027, a 64 percent increase over the current capacity of 77 million tonnes,” it said.
“While we assume that the project will reduce QP's cash flow to the state by around $25 billion spread over 2022-2028, the additional LNG production could ultimately result in more than $20 billion per year of additional hydrocarbon revenue to the government after wind-down of QP capital spending and assuming some of the project costs are covered by debt and international partners.QP is proceeding with engineering and design work and has acquired options for the construction of 100 LNG tankers for $20 billion,” it said.
The rating agency, however, noted that weaker hydrocarbon revenue and disruptions to non-hydrocarbon income as a result of the coronavirus pandemic will lead to alow-single-digit deficits in 2020-2021 after surpluses in 2018-2019.
