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DOHA: FitchRatings has upgraded Qatar's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'AA' from 'AA-'. The country's outlook is stable, the report said.

The upgrade reflects Fitch's greater confidence that debt to GDP will remain in line with or below the 'AA' peer median after falling sharply in recent years, while Qatar's external balance sheet will strengthen from an already strong level. Qatar is likely to retain budget surpluses until the 2030s as a result of the North Field expansion.

Qatar's 'AA' ratings are supported by large sovereign net foreign assets (SNFA), one of the world's highest ratios of GDP per capita and a flexible public finance structure. Rating weaknesses include heavy hydrocarbon dependence and below average scores on some measures of governance, higher government debt/GDP than oil-dependent highly-rated peers and substantial contingent liabilities.

The report forecasts Qatar's general government (GG) budget surplus at 8.6% of GDP in 2024 (2023: 9.3% of GDP), including our estimates of investment income on Qatar Investment Authority (QIA) external assets (5.2% without investment income in 2024). Oil and gas revenue will only marginally drop under our assumption that the Brent oil price will average USD 80/bbl in 2024 (2023: 82). We expect a budget surplus of 6.2% in 2025, despite lower hydrocarbon prices (Brent: USD70/bbl).

It projects the first phase of the North Field expansion to start supporting fiscal revenue fully from 2026 and phase two in 2027, assuming no construction delays, and to bring down Qatar's fiscal breakeven oil price to USD50/bbl in 2027 from around USD 64/bbl in 2024, excluding estimated QIA investment income (to USD41/bbl from USD54/bbl including investment income). This reflects our expectation that new spending commitments will amount to a modest fraction of the new liquefied natural gas (LNG) revenue. Qatar's spending plans on economic diversification are more modest than regional peers.

Qatar Energy (QE) plans to expand LNG production capacity from 77 million tonnes per year (mtpa) to 110 mtpa by end-2025, 126 mtpa by end-2027 and announced a further expansion to 142 mtpa by end-2030. We assume that QE will cover USD12.5 billion of core project costs out of its 2021 bond issuance and a similar amount from its cash flow, spread until 2028, on top of contributions by partners. Funding plans for the 2030 phase will depend on hydrocarbon prices at that time. North Field projects will support both hydrocarbon and non-hydrocarbon growth over 2025-2030.

QE will also cover a significant share of the costs of the ancillary projects associated with the expansion, including downstream plants that will bring its petrochemical capacity to over 15mtpa. QE owns 70% of the Golden Pass LNG project (16mtpa) in Texas, which will start production in 2024, bringing new revenue to the budget via QE dividends.

The report projects debt/GDP to fall to about 47% of GDP in 2024 and 45% in 2025, from a peak of 85% in 2020. This reflects our expectation that the government will continue to repay maturing external debt in 2024 (USD4.8 billion) but is likely to refinance its USD2 billion 2025 maturity in 2024, and will gradually pay down some of its domestic debt. Budget surpluses will still allow Qatar to transfer new funds to the QIA.

Qatar has broadly normalised its relations with the GCC in recent years, although points of tensions remain, the report adds.

Qatar continues to position itself as a mediator in relations between Western powers and Iran and Hamas, among others.

The Israel-Gaza war has caused an increase in regional instability. Qatar has not been directly affected so far, but risks of escalation persist from the ongoing conflict in Gaza, the involvement of the Houthis from Yemen in disrupting Red Sea transit, the activity of other groups with links to Iran and US reprisals against these groups in Yemen, Iraq and Syria.

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20/03/2024
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