Qatar can withstand blockade for extended period: Moody’s changes outlook to stable

DOHA: Moody’s Investors Service (Moody’s) has changed the outlook on Qatar’s long-term issuer ratings to stable from negative and affirmed the long-term issuer and foreign-currency senior unsecured debt ratings at Aa3.

Moody’s said in a statement yesterday that the key driver of the outlook change to stable is Moody’s assessment that Qatar can withstand the economic, financial and diplomatic blockade by the three neighbouring Gulf Cooperation Council (GCC) countries and Egypt in its current form, or with possible further restrictions, for an extended period of time without a material deterioration of the sovereign’s credit profile.

This assessment is in part based on evidence of broad resilience of Qatar’s credit metrics to the economic and financial blockade over the past 13 months.

According to Moody’s, the rating affirmation at Aa3 takes into account a number of credit strengths embedded in Qatar’s credit profile which, in Moody’s view, remains supported by the large net asset position of Qatar’s government, exceptionally high levels of per-capita income, very large hydrocarbon reserves and relatively low fiscal and external breakeven oil prices — all of which will continue to provide a significant shock absorption capacity to the sovereign.

Qatar’s long-term foreign-currency bond and deposit ceilings remain unchanged at Aa3 and the short-term foreign-currency bond and deposit ceilings remain unchanged at P-1. Qatar’s long-term local-currency bond and deposit country risk ceilings also remain unchanged at Aa3.

According to the rating of Moody’s Investors Service (Moody’s), the rapid recovery in imports, with initial levels restored in less than four months, illustrates the economy’s flexibility and policy effectiveness in rerouting supplies. This involved arranging an “air bridge” for food and other staples in the early weeks of the blockade and increasing capacity of a newly completed Hamad Port to prevent macroeconomic disruptions and preserve social stability.

Moody’s estimates, which pointed that the economic impact of the boycott has been modest and largely temporary, indicated that the only sectors that have been visibly impacted by the boycott are tourism.

The effective mobilisation of funds from the central bank’s reserves and the sovereign wealth fund’s foreign assets preserved financial and macroeconomic stability in the face of significant outflows from the Qatari banking system.

While the interventions came at the cost of a material erosion in the central bank’s reserves buffers, they also demonstrate effective coordination and crisis management capacity among the public sector institutions including the central bank, the ministry of finance and the sovereign wealth fund.

Moody’s suggested that sustained and substantial decline in external vulnerabilities would push up country’s rating under the decline of foreign debt and rebuilding of foreign exchange reserves, especially if accompanied by improved transparency of size and composition of government’s financial assets.