Fitch lowers Qatar's sovereign rating

The rating agency also cut its historical estimates of Qatar Investment Authority's assets

Fitch lowered Qatar's long-term issuer default ratings to 'AA-' as the diplomatic and logistical isolation of Doha continues. Naseem Zeitoon / Reuters

Fitch Ratings cut Qatar’s sovereign rating by a notch on Monday, citing slim prospects of ending the diplomatic and logistical isolation by its neighbours, which has dealt a blow to the gas-rich nation’s external balance sheet.

Qatar’s long-term issuer default rating was lowered to 'AA-' with a negative outlook, as the resolution of the ongoing dispute with Saudi-led bloc of Arab nations was “unlikely” for some time, Fitch said in a statement.

“International mediation efforts are still on-going but are not showing significant progress,” Fitch said in the statement. “In our view, the negotiating positions of Qatar and the boycotting countries remain far apart.”

Fitch's rating action came a day after Standard & Poor's Global Ratings reaffirmed its negative outlook for Qatar's long and short-term foreign and local currency sovereign ratings, saying the economic boycott of Doha could potentially lead to slower economic growth.

Saudi Arabia, the UAE, Bahrain, Egypt and other countries severed diplomatic and transport ties with Qatar in early June, accusing Doha of supporting terrorism and meddling in their internal affairs. Qatar has denied the charges.

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The dispute, the worst since the creation of the economic bloc of GCC in 1981, has affected Qatar’s economy, especially its banking sector, which is facing the threat of further outflows of foreign deposits from the financial system.

“We expect outflows of non-resident funding from Qatar's banks to continue, albeit at a slower pace than in June-July,” Fitch noted.

Fitch estimates Qatar's economic growth will slow to 2 per cent in 2017 and further weaken to 1.3 per cent in 2018, compared with a 2.2 per cent GDP growth in 2016. Separately, the rating agency has also cut its historical estimates of the assets of the country’s sovereign wealth fund, Qatar Investment Authority (QIA), following recent comments on their valuation by Qatar's Central Bank governor.

“We expect Qatar's sovereign net foreign assets to fall to 146 per cent of GDP in 2017 from 185 per cent in 2016 as the public sector, including the QIA, continues to move some of its deposits into Qatar's banks, offsetting the outflow of non-resident deposits,” Fitch said, adding that the non-financial public sector placed deposits of more than $18bn in Qatar's banks in June and July, and that is forecast to rise to $35bn by the end of this year.