Qatar outlook downgraded by S&P Global Ratings on rising debt concerns

The rating agency S&P Global Ratings said yesterday it has downgraded its outlook on Qatar to negative from stable on concern that the growth of the country’s external debts may continue to outpace the growth of the size of its investments internationally.

That would reduce the buffer of cash the country needs to finance its budget and would prompt it to take on even more debt, increasing the risk for bond investors who own Qatari paper. For the time being, however, S&P maintained its AA/A-1+ rating on the country. That puts it firmly in the high quality credit rating band on the agency’s rating scale.

“The negative outlook reflects the risk that Qatar’s external posi­tion could deteriorate further should the rapid growth in external debt continue to outpace external liquid asset growth, thereby potentially reducing the buffer provided by its sizable external assets,” said Benjamin Young, a Dubai-based analyst at S&P Global Ratings.

“We could lower the ratings should the pace of increase in external debt continue, for example if non-resident deposit growth continues apace, without a similar increase in external liquid assets.”

Qatari banks’ external liabilities increased sharply by 24 percentage points of GDP over 2016, S&P noted in its report as part of its rationale for the downgrade in its outlook on the tiny GCC state. That has led the country’s liquid external assets to exceed external debt by 100 per cent of current account receipts, the rating agency estimated.

Still, it is not all bad news for Qatar, which has the third-largest proven natural gas reserves in the world, as rising energy prices will help to narrow the budget deficit, which is expected to be 7 per cent of GDP this year, but will be eliminated by 2019.

“We also expect that higher hydrocarbon prices will boost fiscal revenues and contribute to a gradual reduction in fiscal deficits,” the report noted.

Qatar has not been alone in going to the debt markets to help plug financing gaps left in the wake of the collapse in oil prices that began in the summer of 2014. Most of its neighbours in the Arabian Gulf have also been doing so, but they are likely to do so with less frequency this year.

The agency said last month that sovereign borrowing in the Middle East and North Africa is set to decline by 20 per cent to US$136 billion this year following record debt issuances of $170bn last year.

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