Normalisation of relations between Qatar and its neighbors, signaled by the reopening of borders with Saudi Arabia, will help Qatar’s battered non-oil economy but high public sector debt will remain a drag on the country’s ‘AA-’/Stable sovereign rating, Fitch Ratings said.
Saudi Arabia reopened its airspace and land and sea border to Qatar on Monday after the kingdom, Egypt, the UAE and Bahrain had cut diplomatic ties and transport links with Qatar in 2017.
According to a senior Trump administration official, breakthrough had been reached and an agreement aimed at ending the rift will be signed in Saudi Arabia on Tuesday. Representatives from Saudi Arabia, the UAE, Bahrain, Kuwait, Oman and Qatar, will attend the 41st GCC Summit starting Tuesday. The Qatari Emir, Sheikh Tamim bin Hamad Al Thani, will also attend the summit.
"A resumption of travel links will eventually lift tourism inflows, and greater interest from regional buyers could support the real estate market, which has been in a multi-year downturn. Nevertheless, high leverage will remain a key rating constraint. We expect Qatar’s general government debt-to-GDP ratio to hit 76 percent in 2020, up from 60 percent in 2017," Krisjanis Krustins, Director, Sovereign Ratings, Fitch Ratings, said.
Fitch Ratings forecast assumes government debt-to-GDP will fall to 64 percent in 2021, driven by the authorities’ stated intention to repay debt using cash reserves built up through surplus bond issuance over the last three years.
The sovereign’s contingent liabilities are also large, especially those stemming from local banks, Fitch noted.
"Their net foreign liabilities rose to a record $130 billion, or 70 percent of GDP, in 2019. We estimate the debt of non-bank government-related entities is also significant, at around 38 percent of GDP in 2019," Krustins said.
According to the ratings agency, the Qatari government's strong overall asset position mitigates some of the risks from high indebtedness.
"We estimate sovereign net foreign assets at 137 percent of GDP $240 billion in 2019, largely reflecting the estimated assets of the Qatar Investment Authority (QIA)," Krustins said.
Qatar's 2021 budget plans released in December 2020 are realistic, Fitch said.
"Qatar will post a roughly balanced budget in 2020, including estimated investment income from QIA assets. The 2021 budget plans for a deficit of 6 percent of GDP excluding investment income, at an oil price of $40/bbl. We see this as broadly realistic," Krustins said.
(Reporting by Seban Scaria; editing by Daniel Luiz)
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