DOHA: Saying that Qatar successfully faced the challenges of siege, Fitch Ratings, a global credit rating agency, yesterday revised Qatar’s Outlook to Stable from Negative and affirmed its Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AA-’.

“Qatar has successfully managed the fallout from last year’s rupture of trade, financial and diplomatic relations with the Quartet consisting of the UAE, Saudi Arabia, Bahrain and Egypt,” said Fitch Ratings in a statement.

“Public sector liquidity injections have stabilised the banking sector and stemmed the outflow of non-resident funding. The fiscal deficit has narrowed sharply and we expect it to turn into a surplus in 2019,” it added.
The agency said that Qatar’s economy has reconfigured its supply chains and continues to grow at a robust pace.

There has been no escalation of measures against Qatar. Around $10bn in non-resident funding has flowed back into the banking system since November 2017, after falling by $30bn in June-October 2017, mainly due to withdrawals of deposits by Saudi Arabia and UAE-based clients.

A return of non-resident funding has allowed the public sector to pare back its liquidity assistance to the banking sector by $10bn in January-April 2018, from cumulative injections of $40bn in June-December, consisting mainly of placements by the Central Bank, the Ministry of Finance, and the Qatar Investment Authority (QIA).

“We estimate that sovereign net foreign assets (reserves plus other government assets less external debt) were $236bn (141 percent of GDP) in 2017. We estimate other government external assets at around $270bn as at end-2017, little changed from 2016 and mainly in the QIA,” it said.

Strong asset market returns are estimated to have offset much of the impact on QIA external assets from repatriating liquidity into Qatar’s domestic banks.

The government fiscal deficit narrowed to 2.8 percent of GDP in 2017 from 6.3 percent of GDP in 2016, including the estimated investment income on the QIA, as falling spending offset weakness in hydrocarbon revenue (which reflects price movements with a lag).

The immediate budgetary costs of the boycott appear to have been minimal and mostly relate to forgone revenue from the postponement of excise tax and VAT implementation.

“We expect the government budget to be balanced in 2018 and to post a surplus of 2.9% of GDP in 2019 as higher oil prices seep through to public finances, excise tax and VAT are implemented in 2019 and growth in current spending is restrained. We expect capital spending to bounce back in 2018 and plateau at QR100bn per year in 2018 and 2019,” it said.

Its forecasts for the government budget are based on a baseline Brent oil price assumption of $57.5/bbl.

“We estimate that a $10/bbl increase in oil prices could lead to an improvement in the fiscal balance of around 4 percent of GDP relative to our forecast, all other things equal,” it added.

Fitch said that there are prospects for further medium-term improvements to public finances. Government infrastructure spending is likely to moderate after 2020, even if (as we expect) the government adds some new projects to the pipeline in order to sustain non-oil economic activity.

This should help offset the fiscal effect of additional capital spending by Qatar Petroleum in 2020-2022 related to the planned 20 percent expansion of LNG exports from the North Field.

The government faces less pressure to increase public sector employment and maintain social benefits than many of its regional peers, given the small number and high level of wealth of Qatari citizens .

“Real GDP expanded by 1.6 percent in 2017, and we expect a pick-up to 2.3 percent in 2018. Non-hydrocarbon GDP grew by 4.2 percent, down from 5.2 percent in 2016. Imports have recovered to their pre-June 2017 levels, reflecting the establishment of new shipping routes through Oman and India to Qatar’s recently-opened Hamad Port.

The government’s narrow tax base means revenues depend far more on hydrocarbons than on the rest of the economy, but steady economic performance will allow the government to press on with fiscal reforms and reduce the need to support the private sector.

The tail risks of military confrontation or a blockade hitting Qatar’s gas exports have receded, helped by the clarification of the US’s stance.

“Qatar’s government will have little need to seek new international financing after a $12bn international bond issue in April 2018, which will cover its net financing requirement for 2018-2019. Despite the issuance, we expect the debt ratio to be broadly stable in 2018, as the government will reduce overdrafts to regular levels,” it said.