Qatari economy will remain resilient: S&P
12 Jan 2017 - 8:52
Satish Kanady | The Peninsula
Qatari economy will remain resilient, albeit an expected continued institutional weaknesses and ‘only a moderate increase’ in hydrocarbon prices over the next two years. Currently, Qatar’s outlook is stable with AA/A-1+, global ratings agency S&P noted in its "Middle East And North Africa Sovereign Rating Trends 2017," released yesterday
The S&P research note said that it could raise the ratings on Qatar if it saw the country’s domestic institutions mature faster than it expected, alongside significant improvements in transparency regarding government assets and external data quality. “We could lower the ratings on Qatar if developments in hydrocarbon production and prices, or in the banking sector, were to significantly weaken the country's external or fiscal positions; for example, if the government's gross liquid assets fall significantly below 100 percent of GDP, by our estimates, or if interest payments accounted for more than 5 percent of government revenues.”
Overall sovereign creditworthiness in the Middle East and North Africa (Mena) region has continued to deteriorate. The report covers the 13 sovereigns in the region. Of theese 13 Mena sovereigns S&P rates, 10 currently have a stable outlook despite the challenging political and economic backdrop.
"We rate eight of the 13 Mena sovereigns in the 'BBB' rating category or above," S&P Global Ratings sovereign credit analyst Trevor Cullinan (pictured) said. "The average Mena sovereign rating is closer to 'BBB' than 'BBB-', but has been trending downward. When weighted by GDP, the average moves closer to 'BBB+'."
Broadly, ratings in the region are split between the net hydrocarbon exporters and importers, the former having a higher average rating (close to 'BBB+') than the latter (close to 'BB+'). Abu Dhabi, Kuwait, and Qatar continue to be rated at 'AA'. Their large asset stocks, as a percentage of GDP, mainly explain the resiliency of the ratings to the oil price shock. Ratings for the net importers have remained static over 2016.
Available data for 2016 shows a weakening trend in GCC economic activity, reflecting the impact of low oil prices and the resulting fiscal consolidation and reduced banking sector liquidity. S&P expects average GCC GDP growth to slow to about 2 percent in 2016, compared with closer to 4 percent in 2015 and to remain around these relatively weak growth rates in 2017. Government's across the region implemented expenditure cuts and subsidy reforms that have weakened both corporate and household activity, while reduced hydrocarbon deposits in regional banking systems and government domestic borrowing have increased interbank rates and squeezed banking sector liquidity.
The long-term sustainability of GCC economic growth and the ability of their economies to absorb future increases in their working populations and diversify government revenues away from the hydrocarbons sector will rely on the prospects for growth in the non-hydrocarbon sector.