Normalisation of relations between Qatar and its neighbours, signaled by the imminent reopening of borders with Saudi Arabia, will help Qatar’s non-oil economy.
However high public sector debt will remain a drag on the country’s ‘AA-’/Stable sovereign rating, said Krisjanis Krustins, Director, Sovereign Ratings, Fitch Ratings.
A resumption of travel links will eventually lift tourism inflows, and greater interest from regional buyers could support the real estate market.
“Qatar will post a roughly balanced budget in 2020, including estimated investment income from QIA assets. The 2021 budget plans for a deficit of 6 percent of GDP excluding investment income, at an oil price of $40/bbl. We see this as broadly realistic,”
“We expect Qatar’s general government debt-to-GDP ratio to hit 76 percent in 2020, up from 60 percent in 2017,” said Krustins
Earlier in report issued last month, Fitch Ratings had said that improved regional relations would bolster prospects for Qatar’s non-oil economy over the medium term, once the impact of the coronavirus pandemic fades. A resumption of travel links could eventually lift tourism inflows, and greater interest from buyers elsewhere in the region could buoy the local real-estate market.
A reassessment of the geopolitical risks facing Qatar was one of the factors that led us to downgrade its rating to ‘AA-’ from ‘AA’ in August 2017. “Moreover, when we affirmed the rating, with a Stable Outlook, in June 2020 we identified a structural reduction of geopolitical risks, combined with other factors, as a potential positive rating driver,” noted the report.
The banking sector, with assets worth over 200% of GDP, is an integral part of Qatar’s economic model, and the sovereign has an extensive record of supporting it.
Qatar’s banks have concentrated domestic exposures, including exposure to the real-estate sector, and are exposed to adverse shifts in external funding conditions. Their net foreign liabilities rose to a record $130bn, or 70 percent of GDP, in 2019. “We estimate the debt of non-bank government-related entities is also significant, at around 38 percent of GDP in 2019,” said the report.
The report had noted that the government’s strong overall asset position mitigates some of the risks from high indebtedness. “We estimate sovereign net foreign assets (reserves plus other government assets less external debt) at 137 percent of GDP ($240bn) in 2019, largely reflecting the estimated assets of the Qatar Investment Authority (QIA) which have been buoyed in recent years by strong market returns.
