Emerging markets rating agency Capital Intelligence has raised Qatar's sovereign long-term rating to A- from BBB+. The short-term sovereign rating is affirmed at A2. The upgrade reflects Qatar's substantial hydrocarbon wealth, considerable export potential and improvements in economic management.
The rating is constrained principally by the country's heavy foreign debt burden, large debt servicing obligations and the vulnerability of the fiscal and external accounts to terms of trade shocks.
Since the mid-1990s the Qatari authorities have actively pursued a multi-pronged development strategy, financed largely by external borrowing. The primary objective is to diversify the economy by exploiting the country's vast natural gas reserves, which are the second largest in the world.
The results have been impressive. Liquefied natural gas (LNG) exports are increasing and gas-intensive industries such as petrochemicals and fertilizers are expanding. Plans to export natural gas via pipelines are advancing and so is the region's first gas-to-liquids (GTL) project.
Qatar's development strategy has been underpinned by broad-based structural reforms—notably increasing the private sector’s role in public service provision, pro-foreign investment legislation and strengthening the financial system.
Export growth and favorable terms of trade have contributed to current account surpluses exceeding 25 percent of Gross Domestic Product (GDP) in 2000 and 2001, and energy sector expansion is expected to deliver current account surpluses in excess of 20 percent of GDP into the medium term.
External sustainability has been supported by more prudent fiscal policy characterized by spending restraint and the use of conservative oil price assumptions in budgetary planning ($16 per barrel in the current fiscal year). The state budget posted surpluses in the past two fiscal years and is on track to record another small surplus in the current fiscal year, which ends in March 2003.
Qatar has incurred large debts to finance its development program. Public sector foreign debt is estimated at 87 percent of GDP at-end 2001, roughly half of which is due to the export-oriented projects of Qatar Petroleum (QP) and its LNG-producing subsidiaries. This mitigates the risks posed by the debt as future export revenues have been implicitly and, in many cases, explicitly collateralized to service loans.
All debt ratios are expected to fall in the medium term as the economy expands and the debt stock is paid down. The ratio of foreign to exports is expected to fall from 126 percent in 2001 to 101 percent in 2004. The debt-GDP ratio is expected to decline to 68 percent by end-2004. How quickly the debt stock is reduced will depend partly on the extent to which future cash flows allow debt to be paid down, and partly on the volume and financing of future projects.
Public sector foreign debt service is expected to average over $2.3 billion per annum in 2002-2004, but debt service should be manageable at around 21 percent of export receipts. While debt servicing remains vulnerable to an oil price shock, the diversification of the export base suggests it would require a sustained reduction in the oil price to below $16 p/b before servicing obligations would be compromised.
In any event, the authorities possess an undisclosed portfolio of foreign assets that could be liquidated to service government and government guaranteed debt in the event of an external shock.
The geopolitical risks associated with a possible war between the US and Iraq are not deemed sufficiently large at present to constrain Qatar's sovereign rating. Given the distance between Iraq and the Straits of Hormuz shipping lane, the risk that Qatar would be physically prevented to a significant degree from producing and transporting its principal exports—oil and LNG—appears to be small. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
