Posted on March 29, 2020

S&P Global Ratings affirmed its long- and short-term foreign and local currency sovereign credit ratings on Qatar at ‘AA-/A-1+’. The outlook on the long-term rating is stable.

“In view of the sharp fall in international oil prices, we have significantly lowered our oil price assumptions for 2020 and 2021. Nevertheless, Qatar’s government and external balance sheets currently remain strong and provide a buffer to withstand external shocks,” S&P said in a report. It added that while the prices of hydrocarbons may remain low, the government’s fiscal and external positions will remain stable. S&P Global Ratings materially lowered its oil price assumptions for 2020 on March 19, 2020. This follows an earlier significant downward revision of its price assumptions on March 9, 2020. 

“Prices for crude oil in spot and futures markets are more than 55 percent lower than levels observed during the summer of 2019 when prices increased on the back of rising geopolitical tensions. When we last reviewed Qatar, we expected Brent oil prices to average $60 per barrel (/bbl) in 2020 and to gradually decline to $55/bbl in 2021 and beyond,” the report explained. “We now assume an average Brent oil price of $30/bbl in 2020 and $50/bbl in 2021, and $55/bbl from 2022.”

Oil prices plummeted following OPEC’s failure to agree on further production cuts during meetings on March 6. OPEC+ did not agree to a proposed reduction of 1.5 million barrels per day (mmbbl/d) to address an expected significant drop in global demand partly due to the spread of the coronavirus. S&P Global Ratings expected that Qatar’s credit profile to be stable. The ratings are supported by the very strong external and fiscal positions, which are underpinned by relatively low central-government debt and the large external assets Qatar has built up over several years. 

“In view of oil price assumptions, we forecast that the general government balance will record a deficit of 2 percent of GDP in 2020 compared with a 6.6 percent surplus in the previous year and revert to about 4.5 percent surplus by 2023.” “Mirroring developments on the fiscal side, Qatar’s external accounts will run a deficit through 2021, before reverting to about 4.2 percent surplus in the remainder of the forecast period.” S&P Global Ratings expected that project liquid external assets will exceed external debt by 93 percent of current account payments (CAPs) over the forecast horizon, which compares with 136 percent in its last publication.

 “Despite increased external financing needs, we still regard Qatar’s overall external position to be a key strength, underpinned by our estimate of its large liquid financial assets, equivalent to more than 100 percent of GDP. This provides the government with an exceptional buffer during financial shocks,” the report pointed out. “We believe that the authorities are likely to provide extraordinary liquidity support to the banking system, in case of sudden reversals in foreign flows. The government’s timely intervention during the ongoing boycott that started in 2017, to curb the pressure emanating from external funds outflows.”

S&P explained that Qatari government is bringing in structural reforms to diversify its economy and reduce dependence on hydrocarbons. The reforms could gradually increase Qatar’s long-term growth potential. It expected the continuation of political and social stability in the country despite blockade.