Qatar’s moderate debt burden to ease ‘markedly’ in coming years, says CI

Qatar’s relative debt burden is expected to ease “markedly” in the coming years even as it is slated to see a “temporary” increase in 2019 on account of large $12bn international bond issue, according to Capital Intelligence (CI), a global credit rating agency.
Highlighting that the central government’s debt levels are moderate, CI said after increasing significantly during 2014-17, gross government debt stabilised at 48.4% of GDP (gross domestic product) at end 2018 due to an improving government budget balance.
While CI foresees a temporary increase in gross government debt to 51.4% at end 2019 owing to a large international bond issue ($12bn) in March 2019, it expects the government’s relative debt burden to decline markedly in subsequent years.
“Gross government debt is forecast to decline to 39.7% at end 2021 on the back of substantial budgetary surpluses over the next years,” CI said after affirming Qatar’s long-term foreign currency rating and long-term local currency rating at ‘AA-’.
While current government debt levels are moderate, CI considers the large size of the domestic banking sector as an important implicit contingent liability for the government, although potential risks to the public finances are currently mitigated by the strong condition of the banking sector.
Qatar’s short-term foreign currency rating and short-term local currency rating have also been affirmed at ‘A1+’ with “stable” outlook for the ratings.
Asserting that Qatar’s “stable” outlook is likely to remain unchanged over the next 12 months, CI said the outlook balances the projected improvement in government debt metrics over the forecast horizon against substantial geopolitical risks.
The agency said the ratings balance substantial government assets under the management of the sovereign wealth fund, the Qatar Investment Authority (QIA), and very large hydrocarbon reserves against the economy’s limited diversification and substantial geopolitical risks. The ratings also take into account low domestic political stability risks, low transparency of economic data, moderate central government debt levels and the government’s large contingent liabilities given the large size of the banking sector.
Qatar’s ratings are supported by substantial government assets at the QIA with the International Monetary Fund estimates suggesting it to a very high $320bn (166% of GDP) in 2018.
The QIA’s assets comprise both liquid asset classes such as bank deposits or highly rated bonds, and rather illiquid asset classes such as real estate holdings, as well as large shareholdings in domestic and global companies.
Qatar’s ratings also benefit from very large hydrocarbon reserves as hydrocarbon exports provide the government with substantial financial means. The country commands over 1.5% of global oil and 12.9% of global gas reserves. Due to large hydrocarbon exports and a rather small population, GDP per capita stood at an extremely high $70,778 in 2018.