Saturday 06 / July / 2024
Muscat: Qatar’s massive infrastructure investment programme will support growth over 2016-2019 and the country will maintain its strong government net asset position, as fiscal deficits remain relatively moderate, according to S&P Global Ratings report.
The rating agency further affirmed the ratings on Qatar at 'AA/A-1+' with stable outlook and said that the Gulf state’s economy will remain resilient with only moderate increase in hydrocarbon prices over the next two years.
“The government's investment programme focuses on infrastructure, education, and health, and we expect the majority of these projects to be completed ahead of the 2022 FIFA World Cup, which Qatar is hosting,” the agency said.
S&P Global Ratings’ research note pointed out Qatar is a wealthy economy. The country holds the third -largest proven natural gas reserves in the world, and is the largest exporter of liquefied natural gas (LNG).
“We expect Qatar's reserves to provide many decades of production at the current levels. Growth domestic product (GDP) per capita is among the highest of rated sovereigns, estimated at $59,245 in 2016,” the agency said.
“The hydrocarbon sector contributes about 50 per cent of Qatar's GDP, 90 per cent of government revenues (oil and gas taxes and royalties, plus dividends from Qatar Petroleum), and 85 per cent of exports. We view Qatar's economy as undiversified,” S&P Global Ratings said.
Re-based GDP data (from 2004 to 2013) was included in the analysis by the agency, as well as updated population statistics from official sources. This results in a slight downward revision to GDP per capita measure and also real GDP per capita trend growth, which, because of very high population growth, is strongly negative.
"Qatar's population grew by approximately 9 per cent in 2015 according to census data, relating to the ongoing construction of significant infrastructure projects.
“Our real GDP growth projections reflect these developments, with public sector capital investment contributing significantly to growth under Qatar's $125 billion infrastructure investment program. We expect the country's economy to grow by about 4 per cent during 2016-2019, in line with the pace of growth over the last four years. We expect that population growth will slow over 2016-2019 as projects are completed,” it said.
Regarding the hydrocarbon sector, the agency expects that new production and refining facilities coming online over the next couple of years will also support manufacturing activity. However, it does not expect a step change in production and the hydrocarbon sector will likely remain at broadly similar levels of output, albeit with some increase in gas output expected from 2017.
“The moratorium on new projects in Qatar's North Field will continue and will be reviewed only once gas prices begin to recover in the medium term, in our view. We note the government's efforts to diversify the economy, while maintaining its strategic position in the global natural gas market. In our view, medium- and long term challenges to Qatar's competitive position in the LNG market are likely to come from new shale production, Russia's gas pipeline to China, and increased pressure to delink LNG contracts from the price of oil,” the report added.
Moreover, the majority of its gas exports are under long-term contracts, which provides some certainty regarding the volumes sold. “We expect that Qatar will maintain its cost advantage over many new projects in other countries. In January 2016, the renegotiation of RasGas' (Qatar's second biggest LNG producer) contract with Petronet LNG (India's biggest gas importer) at a discount of almost 50 per cent indicates an increasingly competitive environment for natural gas and LNG sellers over the medium term. Existing LNG buyers committed to long-term contracts and other potential buyers may try to renegotiate or achieve similar commercial terms in an environment of persistently low prices,” it said.
Falling oil and gas prices and the government's public investment program have led to a deterioration of the fiscal balance, beginning in 2014. “We expect the general government balance to average a deficit of about 5% of GDP in 2016-2019, after many years of surpluses. Our outlook assumes that the sharp drop in hydrocarbon revenues will be somewhat offset by cuts in current spending, which was reduced by 9.5 per cent in 2015 and is expected to fall further in 2016 as line ministries are closed or merged, slow moving projects are scrapped, subsidies removed, and certain taxes introduced, including an increase in stamp duty. Capital spending will likely continue to slightly increase as infrastructure projects advance,” the agency said.
