Qatar’s fiscal reserves, which “significantly” exceed external debt, limit the external vulnerability of oil price shocks, caused by the coronavirus outbreak’s squeeze on global oil demand and the breakdown of the Opec+ agreement, according to the global credit rating agency Moody’s.
“Stronger fiscal positions, ahead of the shock, buffer the credit implications for Qatar,” Moody’s said in a report. “Lower oil prices to weaken credit profiles of oil-exporting sovereigns”.
Highlighting that varying vulnerability to the fall in oil prices will drive divergence in creditworthiness; it said Doha will benefit from significantly stronger initial fiscal positions, smaller fiscal vulnerability to declines in oil prices, and/or willingness to allow local currency depreciation to buffer the revenue and the current account shock.
During periods of higher oil prices, many oil-and gas-exporting sovereigns accumulated significant sovereign assets, which would provide a degree of resilience during a period of lower oil prices, it said, adding robust sovereign balance sheets would come in the aid of Qatar.
Expecting lower oil prices to reduce fiscal revenue and foreign currency receipts sharply in 2020-21 in the Gulf region; the rating agency said fiscal revenue and exports could likely fall by 4%-8% of GDP (gross domestic product) in Qatar compared to more than 10% of 2019 GDP in Iraq and Kuwait.
The price of Brent crude oil has plunged more than 60% since the end of 2019 to around $26 per barrel as of March 18, 2020, as the spreading the pandemic Covid-19 curbs global oil demand and as the breakdown of the Opec+1 (Organisation of the Petroleum Exporting Countries+1) agreement on March 6, 2020 has prompted several major oil-exporting countries to announce sharp increases in oil production.
Moody’s said “significant” revenue declines would have a particularly large impact on the sovereigns that already had sizeable fiscal deficits in 2019, namely Kuwait, Bahrain and Oman; whereas those with balanced budgets or surpluses in 2019 would be in a better starting position, including Azerbaijan, Russia and Qatar.
Finding that for some sovereigns, the impact of lower prices would take time to filter through, it said this includes Qatar, the hydrocarbon exports of which are mainly liquefied natural gas, which is sold on long-term contracts.
Moreover, foreign currency buffers – including liquid foreign currency assets in sovereign wealth funds, which could provide balance-of-payments support in addition to foreign currency reserves of the central bank – are particularly large in Qatar, the rating agency said, adding it “will support the sovereigns’ pegs to the dollar.”
Stressing that large sovereign assets will provide a degree of resilience for some; the report said during periods of higher oil prices, many oil-and gas-exporting countries accumulated significant sovereign assets, which provide a degree of resilience during a period of lower oil prices.
“This is especially so where the liquid portion of these assets significantly exceeds government debt and is readily available to finance fiscal deficits and debt repayments,” it said.
Qatar’s fiscal reserves “significantly exceed” government debt, Moody’s said, estimating Doha’s liquid fiscal reserve buffers to be 90% of 2019 GDP.