Capital Intelligence affirms Qatar’s long term FCR, LCR rating at ‘AA-‘

By Amirtha P S, Desk Reporter
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The global credit rating agency Capital Intelligence (CI) has declared Qatar’s long-term foreign currency rating (LT FCR) and long-term local currency rating (LT LCR) at ‘AA-’.

The country’s short-term foreign currency rating (ST FCR) and short-term local currency rating (ST LCR) have been affirmed at ‘A1+’. The outlook for the ratings remains “stable”.

The new ratings are supported by the substantial government assets under the management of the sovereign wealth fund, the Qatar Investment Authority (QIA), hydrocarbon reserves, a high degree of expenditure flexibility and low domestic political risk.

The agency considers Qatar’s external and public finances as strong due to the government’s substantial external assets which have been gathered over the past two decades. During the period of 2000 to 2020, Qatar’s average budgetary surplus amounted to 9 percent of GDP (gross domestic product), a large part of which has been invested in external assets. “As a result, the QIA’s total assets are estimated to be in the region of $300 billion, or 205 percent of GDP in 2020,” CI said.

Qatar’s fiscal and external position has been strengthened by the recovery of hydrocarbon prices in the past months. The rating agency now forecasts the current account to register a surplus of 4.7 percent of GDP in 2021 compared to a deficit of 2.5 percent in 2020. The budget surplus is estimated to expand to 5.2 percent of GDP in 2021, from last year’s 1.3 percent.

While the dependency on hydrocarbon revenues gives the public finances vulnerable to price shocks, the government has “ample leeway” to respond to such shocks due to the high degree of expenditure flexibility, the report said.

Further, the rating agency has found that a huge share of sovereign expenditure falls upon discretionary spending items as public investment, and the relative size of the public wage bill is much smaller than in more populous Gulf Co-operation Council (GCC) countries.

In this regard, CI notes that Qatar is the only GCC country that registered a budget surplus last year as the shortfall in hydrocarbon revenues was partially offset by large cuts in public spending (primarily investment spending).

While the government has registered budgetary surpluses over the past years, gross government debt has increased due to several large international bond issues. It reached a moderate-to-high 71.6 percent of GDP in 2020, from 62.3 percent in 2019, on the back of a $10 billion international bond issue in April 2020 alongside a sharp contraction in nominal GDP.

“Going forward, CI’s baseline scenario anticipates debt dynamics to reverse and forecasts a decrease in government debt to 52.2 percent of GDP in 2022 as we expect budget surpluses to increase and the size of international bond issuances to decrease,” the credit rating agency said.

Related: S&P cuts Kuwait’s credit rating to A+ from AA- on lack of deficit-financing strategy