New York, September 24, 2020 -- Moody's Investors Service, ("Moody's") has
today affirmed the Government of Qatar's long-term issuer
and foreign-currency senior unsecured debt ratings at Aa3 and maintained
the stable outlook.
The rating affirmation is supported by a number of strengths embedded
in Qatar's credit profile, which underpin the sovereign's
resilience to shocks, including the current shock triggered by the
coronavirus pandemic and lower global oil prices. In particular,
these strengths include Qatar's exceptionally high level of per-capita
income, its very large hydrocarbon reserves with low extraction
costs, the government's very robust net asset position,
and an established track record of macroeconomic policy effectiveness.
The affirmation also reflects Moody's expectation that over the
next few years the government will reduce its debt burden below 50%
of GDP from an estimated peak of around 68% of GDP in 2020 through
the combination of announced fiscal consolidation measures and a planned
debt reduction exercise which will draw on the government's accumulated
The stable outlook balances elevated regional geopolitical risks and the
risk that an extended period of depressed oil prices delays the anticipated
reversal of the weakening in government debt and debt affordability metrics
against the potential fiscal and economic upside stemming from the planned
expansion of the liquefied natural gas (LNG) production capacity.
Moody's has also affirmed the Aa3 backed senior unsecured
rating of SoQ Sukuk A Q.S.C., a special purpose
vehicle incorporated in the State of Qatar, which is wholly owned
by the Government of Qatar and its debt issuance is, in Moody's
view, ultimately the obligation of the Government of Qatar.
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.
RATIONALE FOR THE RATING AFFIRMATION
EXCEPTIONALLY HIGH INCOME LEVELS AND VERY LARGE HYDROCARBON RESERVES MITIGATE
WEAKENING GROWTH DYNAMICS
Qatar's Aa3 rating is supported by several key credit strengths that underpin
the sovereign's resilience to large economic and fiscal shocks such
as the one imposed this year by the coronavirus pandemic. These
strengths include (i) Qatar's exceptionally high per-capita
income and proved hydrocarbon reserves, which will buffer its economic
strength even if non-hydrocarbon sector growth remains relatively
weak in the coming years, (ii) its access to robust contingency
financial buffers, which significantly exceed the level of government
debt, and (iii) its capacity and policy flexibility to reverse,
over the medium term, the recent weakening of government debt and
debt affordability metrics.
Moody's expects Qatar's economy to contract by 3.5%
this year, largely due to the impact of the pandemic and government
spending cuts on the non-hydrocarbon sector, whereas the
decline in nominal GDP will be nearly four times as large, being
magnified by the decline in oil prices. Moreover, Qatar's
growth will likely remain subdued in the medium term, averaging
1.5-2% until 2024. While this is higher than
the 1% annual growth rate recorded during 2017-19,
it is significantly lower than the 3.8% annual average during
the previous five years when non-hydrocarbon sector growth benefitted
from strong government spending growth. A large cut in government
capital spending in 2020 of around 20% will contribute to the 5.5%
non-hydrocarbon sector contraction that Moody's expects this
year while the spending restraint and the plans to further reduce government
capital spending will slow Qatar's economic recovery from the coronavirus
Nevertheless, Qatar's exceptionally high per-capita
income level, which was $132,886 in 2019 on a purchasing
power parity (PPP) basis, and the sovereign's extraordinary
natural resource wealth provide an effective mitigant to a period of subdued
growth. The exceptionally high per-capita income levels
affords the government a relatively high degree of policy flexibility
to adjust to large fiscal shocks without triggering social stability concerns,
more so that Qatar's citizens (Qatari nationals) account for only
around 10% of the total population and their unemployment rate
-- which has only a very weak link to the level of economic activity
in the non-hydrocarbon sector -- was less than 0.5%
Qatar's relatively weak growth outlook is also mitigated by its
very high level of proved hydrocarbon reserves, which will ensure
that Qatar would be able to produce natural gas and crude oil at around
the current rate for more than another 100 years. Qatar's
very low natural gas extraction and LNG production costs, which
Moody's estimates to be among the lowest globally at around $2
per million British thermal units, give it a uniquely competitive
position in the global natural gas market, where it is the largest
LNG exporter, and position it well against the potential longer-term
impact of carbon transition of demand and prices of fossil fuels.
ROBUST GOVERNMENT BALANCE SHEET AND FISCAL POLICY FLEXIBILITY UNDERPIN
RESILIENCE TO SHOCKS
Moody's expects the sharp drop in energy prices during 2020 to lower
Qatar's fiscal strength as hydrocarbon revenues (79% of total
government revenue in 2019) shrink by more than 20% and push the
fiscal balance to a 2% of GDP deficit from a small surplus in 2019.
Moreover, Moody's projects that government debt, which
rose to nearly 60% of GDP in 2019 from 50% in 2018,
will increase further to around 68% of GDP in 2020.
However, this increase in indebtedness is partly mitigated by the
vast buffers offered by sovereign wealth fund assets accumulated during
the periods of higher oil prices. Moody's estimates that
these assets stood at more than 180% of GDP in 2019 and their liquid
foreign currency portion covered nearly 150% of total government
debt -- notwithstanding significant transparency shortcomings with
respect to the level and the composition of the government's financial
assets, which constrain the sovereign's Aa3 rating.
Moody's expects Qatar's debt burden to revert broadly back
to its 2017 level of around 50% of GDP by the end of 2023 through
the combination of (i) spending cuts, announced by the government
in response to the pandemic, (ii) the debt repayment exercise which
the government plans to carry out before the end of 2021, and (iii)
the recovery in nominal GDP as a result of the assumed gradual increase
in oil prices to around $50-55/barrel in the medium term.
The spending cuts that were announced in March and then expanded in June
highlight the government's fiscal policy flexibility, which
was equally demonstrated during the previous oil price shock in 2015-16,
and its high capacity to absorb oil price shocks. It also reflects
the government's prioritization of stability of public finances
over achieving short-term growth objectives. Moody's
expects that total government spending will be reduced this year by around
14% (or 4.3% of 2019 GDP) relative to 2019,
most of which will come from the cancellation or postponement of non-priority
infrastructure projects until after the 2022 FIFA World Cup. The
flexibility to implement a large spending cut has been strengthened by
the large share of capital spending (43% of total) included in
the approved budget, a large portion of which is discretionary in
nature and can be delayed. Moreover, the government intends
to maintain overall spending at the reduced level also in 2021 with further
capital spending cuts planned in the medium term as the key infrastructure
projects are completed.
GOVERNMENT TO RETIRE DEBT USING ACCUMULATED CONTINGENCY RESERVE FUNDS
The increase in government debt during 2018-19, prior to
the coronavirus shock, was exclusively due to the government's
decision to borrow in excess of its budget financing needs. Despite
small fiscal surpluses in both 2018 and 2019 (averaging 1.6%
of GDP) and a very modest external debt repayment schedule ($3
billion), the government raised $33.5 billion from
external borrowing during those two years, including $24
billion from large multi-tranche issuances of international bonds.
While this has facilitated a small reduction in domestic debt, Moody's
assumes that most of this borrowing has been saved as part of contingency
reserve funds of the Ministry of Finance with the intention to build precautionary
buffers and use some of this saving for the repayment of large external
maturities ($10.9 billion) in 2020 while also taking advantage
of favorable external financing conditions.
It is Moody's understanding that the government has now approved
a plan to use $20 billion (or 13% of 2020 GDP) of these
funds to reduce its gross borrowing requirement during 2020-21,
which, in Moody's baseline scenario, will lead to a
reduction of government debt by nearly $11 billion by the end of
next year and a decline in the debt burden to less than 64% of
GDP from more than 68% of GDP in 2020. Moody's expects
that further debt reduction during 2022-23 will be supported by
the return to fiscal surpluses as a result of a continuous gradual recovery
in oil prices and the continuation of the government's fiscal spending
RATIONALE FOR THE STABLE OUTLOOK
PROSPECT OF SIGNIFICANTLY HIGHER LNG OUTPUT AND LOWER CAPITAL SPENDING
MITIGATE DOWNSIDE CREDIT RISKS
The stable outlook balances a number of risks stemming from Qatar's
exposure to regional geopolitical tensions and its exposure to fluctuations
in global energy demand and prices against the longer-term growth
and revenue upside potential related to the planned expansion of Qatar's
LNG production capacity and the government's plans to further reduce
Geopolitical risks are mostly related to the risk of a further significant
escalation in tensions between Iran and the US and its regional allies,
which could lead to an extended disruption of maritime traffic through
the Strait of Hormuz, on which Qatar depends for virtually all of
its exports and most of its imports. Although Moody's assigns
only a small probability to such an eventuality, its impact on the
government's fiscal position and Qatar's current account balance
would be significant and commensurate to the duration of such potential
Another significant downside risk stems from the possibility that oil
prices remain at depressed levels for longer than Moody's currently
expects, leading to larger and more persistent fiscal deficits and
increasing the uncertainty around the expected path of government debt
These downside risks are balanced by the potential growth and government
revenue upside from progress towards expanding LNG production and gradually
phasing out the government's large infrastructure spending program.
The work is currently underway to significantly expand Qatar's LNG
production capacity by around 40% to 110 million tons per annum
(mtpa) during 2025-27 with government plans of another 15%
increase (to 126 mtpa) during 2028-29. Under Moody's
baseline scenario, a combination of the planned capital spending
cuts (to around $11 billion during 2023-32 from $22
billion in 2019 and the planned $16.5 billion in 2020) and
additional fiscal revenue from new LNG production could reduce the government
debt level well below 40% of GDP in the next six to seven years,
even after accounting fully for the cost of the investment required for
the LNG capacity expansion.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
As Qatar is the largest exporter of LNG in the world, Qatar's environmental
risks derive from carbon transition. Qatar's credit profile would
face downward pressure in a scenario of rapid global transition to lower
reliance on hydrocarbons that would depress global hydrocarbon demand
and prices. However, in light of the measures against climate
change taken so far, this is not Moody's baseline.
Qatar is also one of the countries with the highest level of water stress
due to its scarcity of natural renewable water resources and high rates
of water consumption, requiring that more than half of its water
demand be filled from energy-intensive seawater desalination.
Social risks currently have no material impact on Qatar's credit profile
because of the country's very high GDP per capita and the absence of ethnic
or religious tensions. We regard the global coronavirus outbreak
as a social risk under our ESG framework, given the substantial
implications for public health and safety.
Governance risks in Qatar are primarily related to the limited transparency
in fiscal data and fiscal policy, and poor disclosure regarding
the size, composition and performance of its sovereign wealth fund
assets. This is partly mitigated by the country's relatively strong
institutions and track record of monetary and macroeconomic policy effectiveness.
GDP per capita (PPP basis, US$): 132,886 (2019
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -0.2% (2019
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): -0.4%
Gen. Gov. Financial Balance/GDP: 0.9%
(2019 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.3% (2019 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Economic resiliency: a1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 21 September 2020, a rating committee was called to discuss the
rating of Qatar, Government of. The main points raised during
the discussion were: The issuer's economic fundamentals, including
its economic strength, have not materially changed. The issuer's
institutions and governance strength, have not materially changed.
The issuer's fiscal or financial strength, including its debt profile,
has not materially decreased. The issuer's susceptibility to event
risks has not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A faster and larger than expected reduction in the government debt burden
over the medium term would likely prompt an upgrade of the rating,
especially if accompanied by greater transparency about the size and composition
of the government's financial assets. A material and durable
reduction of regional geopolitical risks would also allow for upward rating
An increasing likelihood that government debt will not decline in the
medium term as currently expected may lead to a downgrade. Such
a scenario would likely reflect a longer than anticipated shock to global
hydrocarbon demand that would put material pressure on the government's
financial position and lead to an erosion of external buffers.
A further material escalation of the geopolitical tensions, threatening
to disrupt Qatar's export routes, would also likely exert
downward pressure on the rating.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, 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 this rating is Alexander Perjessy +971
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653