Qatar buoyed by sovereign rating boost

Qatar’s economic outlook was given a significant boost yesterday when its long-term sovereign credit rating was lifted to AA by Standard & Poor’s, the agency’s third highest band.
“The upgrade is based on the government’s strengthening fiscal and external balance sheets, with strong growth prospects spurred by new large liquefied natural gas (LNG) projects in 2010-2012,” said S&P’s credit analyst Luc Marchand.
The change gives Qatar the highest long-term debt rating of any country in the Gulf, according to data compiled by Bloomberg. Saudi Arabia, the largest regional economy, holds an AA- long-term rating. Abu Dhabi, the leading oil exporter in the United Arab Emirates, also holds an AA rating.
At a time when soaring budget deficits in several countries are subject to increasing scrutiny by credit agencies as risks of national debt default mount, S&P pointed to Qatar’s strong economic indicators,
particularly in the LNG sector.
“Qatar’s economy is weathering the global downturn well, with deflationary pressures and financial sector problems contained by the economic policy flexibility generated by new gas projects,” the S&P report said.
Qatar is projected to stand among the fastest growing economies this year with its real per capita gross domestic product gaining 11% amid rising LNG output. The world’s biggest LNG producer aims to increase its capacity to 77mn tonnes in 2012 from 37mn tonnes in 2009, with three new production units starting this year.
Qatar Petroleum and Royal Dutch Shell’s $18bn Pearl GTL, or gas-to-liquids, project is expected to be completed in the first quarter of 2011.
Together with expected higher prices, increased output is projected to raise nominal GDP by over 40%, more than reversing an 11% decline in 2009. In S&P’s opinion, this strong growth will have favourable repercussions on Qatar’s fiscal and external accounts, providing abundant revenues and export receipts as early as the fourth quarter of 2010.
“The stable outlook balances Qatar’s strong fiscal and external positions against monetary and banking sector challenges and political risks, both geopolitical and as related to developing domestic institutions,” added Marchand.
The report concluded: “Further significant improvements in the amount and transparency of disclosure of the general government net asset position, and progress on institutional reforms could have a favourable impact on the ratings in the coming years, as would a lasting reduction of geopolitical risk.
“Conversely, the ratings could be lowered by several notches if regional geopolitical risks were to escalate sharply, threatening Qatar’s political and economic stability. If political stability were to be compromised by domestic events, the ratings on Qatar could also come under pressure.”
The Qatari government supported its financial institutions following the global financial crisis of 2008, providing banks with capital and purchasing their real estate and equity portfolios.
S&P affirmed its A-1+ short-term rating for the country. The transfer and convertibility risk assessment remains AA+. Additionally, it raised its issue rating on the $700mn floating rate Global Sukuk (Trust certificates) callable series, which is due on September 10 this year, to AA from AA-.