Frankfurt am Main, July 13, 2018 -- Moody's Investors Service ("Moody's") has today
changed the outlook on the Government of Qatar's long-term issuer
ratings to stable from negative and affirmed the long-term issuer
and foreign-currency senior unsecured debt ratings at Aa3.
The key driver of the outlook change to stable is Moody's assessment
that Qatar can withstand the economic, financial and diplomatic
boycott by the three neighboring Gulf Cooperation Council (GCC) countries
and Egypt (B3 stable) in its current form, or with possible further
restrictions, for an extended period of time without a material
deterioration of the sovereign's credit profile. This assessment
is in part based on evidence of broad resilience of Qatar's credit
metrics to the economic and financial blockade over the past 13 months.
The rating affirmation at Aa3 takes into account a number of credit strengths
embedded in Qatar's credit profile which, in Moody's view,
remains supported by the large net asset position of Qatar's government,
exceptionally high levels of per-capita income, very large
hydrocarbon reserves and relatively low fiscal and external break-even
oil prices -- all of which will continue to provide a significant
shock absorption capacity to the sovereign.
The senior unsecured rating of SoQ Sukuk A Q.S.C.
was affirmed at Aa3. According to Moody's the debt obligations
of SoQ Sukuk A Q.S.C. represent debt obligations
of Qatar's government.
Qatar's long-term foreign-currency bond and deposit ceilings
remain unchanged at Aa3 and the short-term foreign-currency
bond and deposit ceilings remain unchanged at P-1. Qatar's
long-term local-currency bond and deposit country risk ceilings
also remain unchanged at Aa3.
RATINGS RATIONALE
RATIONALE FOR CHANGING THE OUTLOOK TO STABLE FROM NEGATIVE
EVIDENCE OF CREDIT RESILIENCE TO THE GCC BOYCOTT
The stable outlook reflects Moody's view that Qatar's credit
metrics will likely remain consistent with a Aa3 rating as the boycott
continues. The stable outlook also makes provision for some additional
restrictions and is supported by Moody's view that a quick resolution
or a significant escalation of the regional dispute materially affecting
Qatar's credit metrics are a low-probability event.
The boycott by Saudi Arabia (A1 stable), the United Arab Emirates
(UAE, Aa2 stable), Bahrain (B1 negative) and Egypt started
in June 2017 and caused a sudden closure of established land and maritime
trade routes for Qatar's imports, a sharp drop in its goods
and services exports to the four countries and a large outflow of foreign
funding from the Qatari banking system.
The rapid recovery in imports, with initial levels restored in less
than four months, illustrates the economy's flexibility and
policy effectiveness in rerouting supplies. This involved arranging
an "air bridge" for food and other staples in the early weeks
of the blockade and increasing capacity of a newly completed Hamad Port
to prevent macroeconomic disruptions and preserve social stability.
According to Moody's estimates, the economic impact of the
boycott has been modest and largely temporary. The only sectors
that have been visibly impacted by the boycott are tourism, with
visitor arrivals from the GCC countries that accounted for close to half
of the total arrivals in 2016, falling by 40% and unlikely
to recover in the foreseeable future, and transportation,
namely the national carrier Qatar Airways, which has been blocked
from flying to 18 destinations in the Middle East and has said earlier
this year that it has made a "substantial loss" during the
past financial year.
Rather than a direct economic impact, the main credit implication
of the boycott through a permanent loss in tourism and transportation
revenues and potential is that it will hamper the government's economic
diversification efforts. However, in Moody's view,
these constraints on economic diversification do not materially affect
the sovereign's credit profile.
Moreover, the effective mobilization of funds from the central bank's
reserves and the sovereign wealth fund's foreign assets preserved
financial and macroeconomic stability in the face of significant outflows
from the Qatari banking system. While the interventions came at
the cost of a material erosion in the central bank's reserves buffers,
they also demonstrate effective coordination and crisis management capacity
among the public sector institutions including the central bank,
the ministry of finance and the sovereign wealth fund.
The outflows were equivalent to $30 billion or 18% of GDP
during the second half of 2017, as GCC clients repatriated their
deposits and GCC banks withdrew funding. The foreign outflows stabilized
towards the end of 2017 and about a third of the cumulative outflows has
reversed in the first five months of 2018. This has allowed the
central bank and the Qatar Investment Authority (QIA, the sovereign
wealth fund) to move back some of their assets offshore. Meanwhile,
the foreign exchange reserves of the central bank increased to $23.3
billion in May 2018 from $13.2 billion at the end of last
year (excluding gold and SDRs), albeit still well below their $33.7
billion level before the boycott.
The demonstrated financial and institutional capacity to use the sovereign
wealth fund's (SWF) foreign assets mitigates Qatar's external
vulnerability stemming from the economy's large external debt repayments
in relation to the level of the central bank's foreign exchange
reserves. That being said the lack of transparency about the exact
size of the QIA assets and their composition prevents a detailed assessment
of Qatar's financial capacity to stem potential balance of payments
pressure.
On the fiscal side, the direct fiscal costs of the GCC blockade
have so far been very small and limited to the funding of the "air
bridge" during the first two months of the blockade (less than 0.1%
of GDP). A more significant fiscal cost has been indirect due to
the delayed implementation of planned new revenue measures, including
utility tariff and public service fee hikes that were scheduled for mid-2017.
These measures were put on hold to give the private sector additional
room to adjust to the blockade, leading to an estimated loss of
government revenue of 1.5-2.5% of GDP.
However, this revenue shortfall was fully offset by lower capital
expenditure, and Moody's expects that the delayed revenue
measures will be implemented during 2018. Similarly, Moody's
expects that the 5% value-added tax, which the authorities
were supposed to implement at the be beginning of 2018 and which would
yield up to 0.9% of GDP in additional non-hydrocarbon
revenue for the budget, will be implemented by early 2019,
putting fiscal reform back on track.
Meanwhile, any revenue shortfalls this year will be more than offset
by higher oil prices which the 2018 budget assumed at $45/barrel,
most likely well below the average level in 2018 and underscoring the
authorities' prudent approach to budgeting.
Contingent liabilities that could potentially crystallize on the sovereign
balance sheet in relation to the extended losses of Qatar Airways,
which is fully owned by the QIA, would be comfortably absorbed by
the SWF. Moody's estimates that the SWF had assets worth
close to 190% of GDP at the end of 2017, compared with 3.3%
of GDP in Qatar Airways' debt obligations, only a fraction
of which would plausibly crystallize.
RATIONALE FOR AFFIRMING THE RATING AT Aa3
Qatar's Aa3 rating remains supported by a very large net asset position
of the Qatari government, that Moody's estimates at 137%
of GDP at the end of 2017; exceptionally high levels of per-capita
income ($61,282 in current US dollars and $124,529
on a purchasing power parity basis); and very large hydrocarbon reserves
(including more than 140 years of natural gas production at the current
rate).
Qatar's rating is also supported by its moderate fiscal and external
break-even oil prices, the oil price levels that would balance
the government's budget and the current account respectively.
According to the IMF, Qatar's fiscal breakeven price is around
$47/barrel for 2018 (when income from the SWF assets is included
in revenue), while its external breakeven price is $57/barrel,
both below current oil price levels and in line with Moody's medium-term
assumptions (around $45-65/barrel).
Furthermore, Moody's expects that the fiscal breakeven price
will decline by up to $20 over the medium term as the government
halves its capital spending after the 2022 FIFA World Cup and raises LNG
production by close to 30% from the new gas development in the
North Field during 2023-2024. As a result, Qatar's
government budget is likely to be broadly balanced or, in the medium
term, in surplus, leading to a gradual decline in government
debt from just under 50% of GDP in 2017 towards 40% of GDP
early next decade.
WHAT COULD MOVE THE RATING UP/DOWN
The stable outlook reflects Moody's view that risks to Qatar's credit
profile are balanced. A sustained and material reduction in external
vulnerabilities through a combination of a decrease in external debt and
a re-building of foreign exchange reserves would likely prompt
Moody's to upgrade the rating, especially if also accompanied
by improved transparency about the size and the composition of the government's
financial assets.
Conversely, an escalation of the regional tensions that would (1)
threaten to disrupt Qatar's hydrocarbon exports on a prolonged basis,
(2) put material pressure on the government's financial position,
including through crystallization of wider public sector liabilities on
the government's balance sheet, and (3) lead to a further
significant depletion of the external buffers would likely lead Moody's
to downgrade the rating. Furthermore, a material slowing
or reversal of fiscal consolidation that would point to a sustained rise
in the government's debt burden would put downward pressure on the
rating.
SUMMARY OF MINUTES FROM RATING COMMITTEE
GDP per capita (PPP basis, US$): 124,529 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.6% (2017 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.6%
(2017 Actual)
Gen. Gov. Financial Balance/GDP: -5.8%
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 3.8% (2017 Actual) (also
known as External Balance)
External debt/GDP: 88.0% (2017 Actual)
Level of economic development: Very High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 09 July 2018, a rating committee was called to discuss the rating
of the Qatar, Government of. The main points raised during
the discussions were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutional strength/ framework, have not materially
changed. The issuer's fiscal or financial strength, including
its debt profile, has not materially changed. The issuer's
susceptibility to event risks has not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in December 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
The Local Market analyst for these ratings is Alexander Perjessy,
+971 (423) 795-48.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Steffen Dyck
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
