S&P affirms Qatar’s AA/A-1+ ratings on strong financials, outlook stable

By bne IntelliNews October 11, 2013

Standard & Poor's has affirmed Qatar’s long- and short-term foreign and local currency sovereign credit ratings at AA/A-1+ with a stable outlook, the ratings agency said in a statement. Qatar's strong net external and fiscal asset positions balance the concentration risk related to the economy's dependence on the hydrocarbons sector, S&P said. The stable outlook reportedly balances Qatar's high economic wealth and strong external and fiscal positions against its institutional shortcomings and limited monetary flexibility.

But the ratings are constrained by “limited monetary policy flexibility, still-nascent public institutions, and limited disclosure, particularly with respect to government assets and investment income,” S&P noted.

The leadership succession from Hamad bin Khalifa al-Thani to his son, the new emir, Tamim, has proceeded smoothly, but executive power remains concentrated in the hands of the emir, S&P said.

Qatar is one of the wealthiest economies S&P rates with GDP per capita estimated at USD 94,000 in 2013. Real GDP has contracted on a per capita basis in several of the past five years, S&P said, but nominal GDP has increased by an average of 20% and may be a better indicator of prosperity in a resource-based economy. Qatar’s population growth will average around 6% annually until 2016, S&P forecast.

The agency reckoned that Qatar's high wealth levels mean that its relatively weak economic growth performance is not an immediate concern for the ratings. But Qatar's economic risk position could deteriorate compared to faster-growing economies, S&P warned. Drafting a base-case scenario, S&P assumes that oil prices will remain high over the medium term at about USD 110 per barrel. Oil production, however, will decline as output from maturing fields contracts, S&P noted. Crude oil production might thus decline by an average of 6% yearly over the 2013-16 period. Gas output (liquefied natural gas and natural gas) and condensates will grow by 3% and 2%, respectively, over the same period, S&P forecasts.

Given the cited oil and gas production assumptions, general government revenues will decline to below 30% of GDP by 2016 from 41% of GDP in 2012. The growth of government expenditure will likely slow to an average of 9% yearly for 2013-2016 in order to maintain a fiscal surplus, S&P said. Government expenditure grew by an average of 14% a year during the five years to 2012.

S&P also warned of several structural weaknesses and challenges facing Qatar.  The country's public institutions are in the early stages of development compared with most AA rated sovereigns.
Monetary policy flexibility is limited due to currency peg against the USD.  Data gaps are also significant and transparency is limited, compared with international standards. The government neither discloses its fiscal assets nor reports earnings on these assets, S&P said.

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