(MENAFN- Gulf Times) Global credit rating agency Standard & Poor's (S&P) has affirmed its 'AA' long-term and 'A-1+' short-term foreign and local currency sovereign credit ratings on Qatar despite moderate impact on the macro economy due to weak oil prices.
Stamping a "stable" outlook on the ratings; S&P said, in view of the sharp fall in international oil prices in the recent months, it has revised down the price assumptions for 2015-2018 significantly.
"We currently expect an average Brent oil price of $55 per barrel in 2015 and $70 per barrel in 2015-2018," it said, forecasting the real GDP (gross domestic product) growth rate to average about 4% in 2015-2018, supported by activity in the non-oil sector.
Assuming Qatar's oil production to decline as output from maturing fields contracts, it said "we expect an average annual decline in crude oil production of 5% over 2014-2017 and project largely flat gas output (LNG and natural gas), given Qatar's moratorium on new investments in the sector, while condensate volumes will likely increase by about 5% per year over the same period."
S&P expect general government revenues to decline to about 42% of the GDP by 2015 from about 47% in 2014 and said the government's budget for fiscal year ended March 2015 indicates expenditure growth of 3.7% compared with the previous year.
"We expect government spending to slow to an average of 4% for 2014-2017, enabling the government to contain emerging fiscal deficits in 2015 and 2016," it said.
Nevertheless, S&P believes that reducing government expenditure growth sharply could "prove difficult" in view of capital investment of about 15% of the GDP each year over the next five years as part of national development strategy (NDS), largely funded through the budget.
Expecting the NDS projects to improve the economy's productive capacity and strengthen Qatar's competitive position, it said however, there is a risk that an investment agenda of this scale could weaken the government's strong balance sheet, reduce the stability of the banking system, or increase leverage in the corporate sector.
"Notwithstanding these risks, we assume Qatar's net external asset position will remain strong, at around 200% of current account receipts in 2015-2018," it said.
Highlighting that Qatar has accumulated considerable foreign assets over the past decade as a result of its development of its natural resources, S&P said "we forecast that the general government net asset position will remain strong, averaging about 100% of GDP during 2015-2018."
The pace of asset accumulation will depend on how hydrocarbon production and prices develop, it said, estimating that "trend" growth, a weighted 10-year average of real GDP per capita expansion, to be broadly flat.
"Qatar's high wealth means that its relatively weak per capita economic growth performance is not an immediate concern for the ratings. However, beyond our two-year outlook horizon, Qatar's economic risk position could deteriorate relative to economies that are expanding more rapidly," it said.
The medium-to-long-term challenges to Qatar's competitive position in the liquefied natural gas (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 oil price.
Nevertheless, Qatar's competitive position in the LNG market is supported by strong expected global demand, the country's strategy to realign destinations and contracts, and cost advantage.
Since Qatar produces and exports significant quantities of condensate and natural gas liquids associated with natural gas, its effective average cost of producing LNG is much lower. Page
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