S&P Global Ratings has affirmed its ‘AA/A-1+’ long- and short-term foreign and local currency sovereign credit ratings for Qatar, maintaining a stable outlook.
According to a report, this stable outlook reflects S&P’s assessment that Qatar’s fiscal and external buffers are expected to benefit from the nation’s status as one of the world’s largest exporters of LNG over the next two years, further enhanced by production increases from the North Field Expansion (NFE) project scheduled for 2026-2030.
Downside scenario
The ratings could be downgraded if Qatar encounters a significant external shock. Such a shock might stem from an unexpected disruption to critical export routes due to regional geopolitical developments, or from a substantial deterioration in its terms of trade, which could severely impact budgetary performance and reduce available fiscal assets.
Upside scenario
Conversely, the ratings could be upgraded if risks associated with Qatar’s external position decrease. This includes a reduction in the country’s external financing needs, along with a notable improvement in data transparency, such as the provision of complete international investment position data, including details on the government’s external assets.
Rationale
S&P’s ratings for Qatar are underpinned by its substantial external and fiscal net asset positions, supported by funds accumulated in the sovereign wealth fund, the Qatar Investment Authority (QIA), from previous hydrocarbon exports, particularly LNG. Projections indicate that the government’s liquid assets will average 165 percent of GDP from 2024 to 2027.
Qatar is anticipated to remain one of the largest LNG exporters globally. The government aims to boost Qatar’s LNG production capacity from the current 77 million tons per year (mtpa) to 126 mtpa by 2027, with a further increase to 142 mtpa before 2030—an overall rise of nearly 85 percent compared to current capacity. The forecast suggests that actual LNG production will largely stabilize until 2025, before increasing by approximately 35 percent from current levels by 2027. The strategic shift away from Russian gas, particularly among European economies, indicates a growing demand for additional exports from Qatar.
However, Qatar may be susceptible to geopolitical developments in the Middle East. While
It is important to note that nearly all of Qatar’s exports currently transit through the Strait of Hormuz, with over 70 percent of its LNG exports directed to Asia. This situation is expected to remain largely insulated from current geopolitical tensions. Disruptions have not impeded the delivery of Qatar’s LNG, as shipments to Europe have been successfully rerouted around the Cape of Good Hope.
Monetary policy constraints
S&P’s ratings for Qatar are also constrained by the limited flexibility of monetary policy due to the exchange-rate regime that ties the Qatari riyal to the U.S. dollar. Additional constraints arise from the high levels of foreign liabilities held by domestic banks (including nonresident deposits and interbank liabilities) and the relatively short-term nature of this funding, which continues to exert pressure on Qatar’s external financing needs. Nonresident deposits could pose balance-of-payment risks in the event of significant outflows; however, the government has a solid track record of supporting the domestic financial sector.
Institutional and economic profile
Growth momentum is expected to strengthen from 2026, supported by the North Field Expansion (NFE) LNG project.
Also, the non-hydrocarbon sector is projected to drive economic growth through 2025, followed by an increase in LNG production.
Moreover, S&P views Qatar’s substantial stock of public sector external assets as a buffer for policy maneuvering, if necessary.
Despite geopolitical risks in the region, a full-scale regional conflict in the Middle East remains outside S&P’s base-case scenario.
In addition, despite heightened geopolitical risks in the Middle East, macroeconomic conditions in Qatar are anticipated to remain broadly stable.
Qatar’s LNG export significance
Qatar exports approximately 20 percent of the world’s LNG supply, and sustained disruptions to trade routes, including the Strait of Hormuz (not considered S&P’s base case) and Bab Al-Mandeb, could negatively impact these exports. However, Qatar’s fiscal and external inflows are expected to remain supported by uninterrupted export flows, particularly as Qatar predominantly exports LNG to Asian buyers, and these flows have remained unaffected by ongoing disruptions in Red Sea trade (see “QatarEnergy,” published September 3, 2024).
Economic growth projections
As anticipated, Qatar’s real GDP growth slowed to 1.2 percent in 2023, down from 4.2 percent in 2022 when the country hosted the FIFA World Cup. Real GDP is projected to expand by an average of 2 percent in 2024-2025, driven by nonhydrocarbon sectors such as wholesale and retail trade, finance, and hospitality. Growth is forecasted to temporarily accelerate to 7 percent in 2027 as additional gas production commences, benefiting the nonhydrocarbon sector through spillover effects.
Income levels and credit profile
Qatar’s income levels remain among the highest of rated sovereigns, bolstering its credit profile. S&P anticipates that GDP per capita will exceed $80,000 once the NFE project enhances LNG production post-2026.
Continuity in economic policy
No significant economic policy shifts are expected over the forecast period through 2027. Government policy is likely to continue focusing on the prudent development of the hydrocarbons sector, alongside efforts to promote private sector activity and diversify the economy under the National Development Strategy 3. Notably, the policy flexibility demonstrated during the 2017 embargo allowed Qatar to diversify its imports and enhance food self-sufficiency in various areas.
Political and social stability
Qatar maintains domestic political and social stability, despite what S&P perceives as only gradual political liberalization and highly centralized decision-making. The country’s public institutions are still relatively underdeveloped compared to those of most other sovereigns rated in the ‘AA’ category. Executive power is concentrated in the hands of Emir Sheikh Tamim bin Hamad Al Thani, who serves as the monarch, head of state, and commander-in-chief of the armed forces. There is a lack of full public disclosure of data in several areas, including the composition of government assets and the broader international investment position, complicating S&P’s assessment of risks.
Energy transition risks
Compared to non-regional peers in the same rating category, Qatar faces higher energy transition risks due to its dependence on the LNG sector. S&P assumes that LNG demand is likely to peak in the mid-2030s, with increasing adoption of renewables in the energy market. Nevertheless, as a low-cost supplier, Qatar is expected to maintain a strong competitive position even beyond 2030.
Flexibility and performance profile
Rising LNG production will support strong fiscal and external balances over 2024-2027
S&P forecasts that Qatar’s current account and fiscal surplus will average 16 percent and 4 percent of GDP, respectively, from 2024 to 2027, reinforcing its net external and fiscal asset positions.
The high level of foreign liabilities held by domestic banks continues to exert pressure on Qatar’s external liquidity.
Furthermore, S&P expects the Qatar Central Bank (QCB) to maintain the peg of the Qatari riyal (QAR) to the U.S. dollar, supported by substantial foreign reserves and government assets.
Economic dependence on hydrocarbons
Qatar derives approximately 40 percent of its GDP, 80 percent of government revenue, and 90 percent of exports from the hydrocarbon sector. Consequently, S&P anticipates that Qatar’s strong fiscal and current account surpluses will persist through 2024-2027, based on an assumed Brent oil price of $81 per barrel in 2024 and $75 per barrel in 2025-2027, along with expected increases in LNG production capacity by 2027 (see “S&P Global Ratings Revises Its Oil Price Assumptions; North American And Dutch Title Transfer Natural Gas Price Assumptions Unchanged,” published October 1, 2024).
Projected fiscal surplus growth
The fiscal surplus is projected to strengthen to around 8 percent of GDP by 2027 as new LNG production comes online from the NFE project. In the first half of 2024, the central government’s fiscal surplus was reported at QAR4.6 billion (0.6 percent of GDP). Despite favorable average oil prices in 2024, oil and gas revenue during the first half was relatively modest due to lower revenue transfers from QatarEnergy. S&P expects these transfers to remain steady in the latter half of the year, estimating a full-year fiscal surplus of about 4 percent of GDP at the general government level (with a slight deficit of approximately 0.2 percent of GDP at the social security system level), supported by the $81 per barrel price and stable LNG production.
Government expenditure outlook
Government expenditure is expected to average about 27 percent of GDP over 2024-2027, compared to an average of 35 percent of GDP from 2015 to 2020. This expectation of expenditure restraint over the forecast period is largely attributed to a decline in the government’s direct spending on capital projects, which is projected to decrease to about 6 percent of GDP by 2027 from an average of 10 percent of GDP in 2021-2022, as many large infrastructure projects, such as Doha’s new metro and tram system, have been completed. Investment costs related to the NFE will largely be borne by QatarEnergy.
Debt composition and projections
In recent years, Qatar’s authorities have aimed to reduce external debt levels, a trend expected to continue, with only partial refinancing of foreign debt coming due. In 2023, the government repaid approximately QAR27 billion (about 3.4 percent of GDP) of its debt. This year, further debt reduction of about 2 percent of GDP is anticipated, partially offset by new debt issuance of $2.5 billion (1.2 percent of GDP) in May 2024.
When adding the borrowings of Qatar’s sovereign wealth fund, the Qatar Investment Authority (QIA), which amount to 6 percent of GDP, to the direct government debt, general government debt is estimated to reach 48 percent of GDP by year-end 2024 (down from 50 percent of GDP in 2023). This figure is expected to decline to about 33 percent by 2027 in line with the government’s debt repayment strategy and a significant increase in nominal GDP. Continued debt reduction, along with anticipated revenue increases from higher gas production related to the NFE, will keep average debt-servicing costs below 5 percent of general government revenue. The country’s strong general government net asset position (projected to average 125 percent of GDP over 2024-2027) remains a credit strength, bolstered by investment returns on QIA’s holdings.
Read more: Qatar records $4.85 billion surplus of foreign merchandise trade in September 2024
External net asset position
The sizable assets accumulated within the QIA will also continue to support Qatar’s robust aggregate external net asset position from 2024 to 2027. However, Qatar is notable within the Gulf Cooperation Council (GCC) for having a significant level of net external banking sector liabilities, which keeps external financing needs high and poses potential funding risks for the system. Regulatory directives introduced by the QCB in 2022 initially prompted a substantial reduction of $23 billion in potentially riskier nonresident deposit funding from year-end 2021 to August 2024. However, an increase of $8 billion in interbank liabilities during the same period partially offset the decline in nonresident deposits. Despite recent increases, S&P expects the banking sector’s external debt to stabilize, as domestic funding sources are projected to support credit growth, which is anticipated to slow to an average of 5 percent over 2024-2027, compared to 11 percent on average during 2019-2022.
Although Qatari banks may be vulnerable to potential external funding outflows and shifts in investor confidence amid geopolitical conflicts, S&P expects the Qatari government to provide extraordinary support if necessary, as demonstrated during the 2017 boycott. The risk to Qatar’s external funding stability is also somewhat mitigated by the understanding that a significant portion of nonresident deposits remains linked to long-term investments in the country.
Monetary policy constraints
S&P’s ratings on Qatar are constrained by the limited flexibility of monetary policy due to the exchange-rate regime that pegs the Qatari riyal to the U.S. dollar. In September 2024, the QCB reduced the policy rate by 55 basis points to 5.20 percent, and further interest rate cuts are expected to align with the policy decisions of the U.S. Federal Reserve. Consumer price index inflation is anticipated to remain modest, at about 2 percent over 2024-2027.
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