Posted on August 28, 2017

Overview

We expect the ongoing boycott of Qatar's economy will lead to slower economic growth and hamper fiscal and external performance as outflows of external financing are offset by drawing upon government assets.

  • The Qatari authorities are utilizing the country's large fiscal assets to limit the impact.
  • We are affirming our 'AA-/A-1+' ratings on Qatar and removing them from CreditWatch with negative implications.
  • The negative outlook reflects our view of the potential consequences of the boycott on Qatar's economic, fiscal, and external metrics, especially if the boycott is tightened or prolonged.

Rating Action

On Aug. 25, 2017, S&P Global Ratings affirmed its 'AA-/A-1+' long- and short-term foreign and local currency sovereign ratings on the State of Qatar. The outlook is negative. The ratings were removed from CreditWatch with negative implications, where we placed them on June 7, 2017. The transfer and convertibility (T&C) assessment is 'AA'.

Outlook

The negative outlook reflects our view of the potential consequences of the boycott on Qatar's economic, fiscal, and external metrics, especially if the boycott is tightened or prolonged.

We could lower our ratings on Qatar if the boycott reduces economic wealth levels to an extent that we no longer assess GDP per capita as a sufficient cushion to offset Qatar's weak trend growth rate. We could lower the ratings if policy predictability in Qatar were to become more uncertain. In order to support its economy and banking system, the Qatari government is liquidating and utilizing part of its fiscal assets. If our estimate of the government's liquid assets were to fall substantially, we could also lower the ratings.

We could raise the ratings if we saw domestic institutions mature faster than we expected, alongside significant improvements in transparency regarding government assets and external data quality.

Rationale

We affirmed the long- and short-term ratings on Qatar at 'AA-/A-1+'. This reflects our expectation that the authorities will continue to actively manage the impact of the boycott while preserving Qatar's core rating strengths, including strong public finances. While we expect that economic growth will slow as a result of the boycott, we still expect the government's infrastructure plan to underpin economic expansion and to partly offset low confidence and reduced consumption.

The government has taken measures to support confidence in Qatar's banking system, including the repatriation of deposits previously held abroad into the domestic banking system belonging to the sovereign wealth fund Qatar Investment Authority (QIA). We expect further nonresident deposit outflows as they mature, which we expect will continue to happen in an orderly manner, limiting the likelihood that substantial additional support from the government to the banks would be needed. We do not expect the government's fiscal flow metrics to be materially altered by the boycott.

Finally, while we expect external finances to weaken in the short term, higher oil price assumptions from 2019 (see "S&P Global Ratings Raises Its Oil And Natural Gas Prices Assumptions For 2017," published Dec. 15, 2016, on RatingsDirect) and an assumption that measures will not escalate further, should underpin an improving picture in the outer years of our forecast through 2020.

 

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