While lower oil prices will negatively affect Qatar’s (Aa2 stable) government revenues, large financial assets provide a sizeable buffer, says Moody’s Investors Service in a report published today.
Moody’s report, entitled “Government of Qatar” is available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release. The rating agency’s report is an update to the markets and does not constitute a rating action.
Although it is unlikely that Qatar will be able to replicate the strong growth performance of 2004-2011, Moody’s forecasts that average real GDP growth will remain robust at around 5% until 2017. This will be driven by growth in the non-hydrocarbon sector and the Barzan gas project coming on stream, following which hydrocarbon output will likely flatten.
“Despite the oil price shock, real GDP growth in Qatar will likely remain relatively strong over the next two years. The government’s fiscal buffers and sizeable assets will sustain public investment, which in turn will support non-hydrocarbon growth,” says Steffen Dyck, a VP-senior analyst at Moody’s.
“However, we expect low oil prices to lower the government’s revenue streams. Qatar Petroleum’s (Aa2 stable) profits, which accounted for 33% of total government revenues in 2014, will likely decline, although they will remain at fairly high levels.”
The rating agency expects lower oil prices in 2015 and 2016 to impact government finances and real growth with a lag. This is because LNG projects are typically secured with long-term sale and purchase contracts, assuring a degree of protection against the volatility in spot and short-term markets.
Based on its Brent crude oil price projections of an average $55 per barrel in 2015 and $53 in 2016, and assumptions regarding spending growth, Moody’s forecasts that the government’s fiscal surplus will decline to 6.4% of GDP in 2015, from 16.7% in 2014 and will turn into a small deficit of 2.4% of GDP in 2016.
Qatar’s debt-to-GDP ratio, projected to reach about 35% in 2016, is higher than the median for similarly-rated peers, although it is significantly lower than for the UK (Aa1 stable) and France (Aa2 stable), and at comparable levels to China (Aa3 stable) and Korea (Aa3 positive). In addition, interest payments as a share of government revenues — a measure of debt affordability — are in line with the rating peer group median.
Moody’s notes that Qatar’s susceptibility to event risk is moderate, reflecting persistent geopolitical tensions in the Middle East region.